When people think of estate planning, they often think about wills. While wills are the cornerstones of many people’s estate plans, there are other aspects of estate planning that should not be overlooked.
Interestingly, one of the most commonly overlooked parts of estate planning is also one of the simplest and most visible: beneficiary designations.
What are beneficiary designations?
A beneficiary designation is when you assign someone to benefit from a life insurance policy, an IRA, a 401(k), a pension or any other contract, account or policy. It states that the person chosen will get the money or benefits when you pass away.
To say that beneficiary designations are completely overlooked would not be quite accurate. People may designate a beneficiary at the outset, when an insurance policy, retirement account or other tool that calls for one is created. Then they move through their lives – getting married, having children, getting divorced, moving, getting married again, so on and so forth – without ever revisiting beneficiary designations.
Without a designated beneficiary, assets will be passed on in accordance with estate laws, which may not correspond with the deceased’s wishes. Furthermore, if a designated beneficiary was never updated, assets could go to an ex-spouse or another party or be passed on in a manner that is not ideal, leading to serious issues.
Beneficiary designations should be a part of your estate planning
A comprehensive estate plan should include tools like a will, as well as possibly a trust and more, but it should also involve going through all contracts, accounts and policies to add or update beneficiaries according to your goals.