5 Beneficiary Mistakes to Avoid

When creating an estate plan, one of the most important decisions you will make is choosing who will inherit your assets after you pass away. This decision is typically made by naming beneficiaries in a will or trust. While this may seem like a straightforward process, there are actually several common mistakes you can make when naming your beneficiaries. These mistakes can lead to complications and disputes among family members, ultimately causing delays and additional expenses in the distribution of your assets.

The estate planning attorneys at The Law Offices of Diron Rutty, LLC can explain how people make these mistakes and how they can affect your beneficiaries. If you have any more questions or need help writing your will or trust, contact us for more information.

Common Beneficiary Mistakes to Avoid

#1. Failing to Update Beneficiary Designations

One of the biggest mistakes people make is failing to update their beneficiary designations after major life events occur. There are several instances where it makes sense to update your beneficiaries, such as:

  • Getting married or divorced
  • Having children
  • Experiencing the death of a loved one
  • Your children have children (your grandchildren)

After these life events, it is important to review and update your beneficiary designations accordingly. A court can and may assume that you meant to update your beneficiaries but failed to do so, and will do so accordingly. Sometimes you didn’t want to leave them any assets, or you meant to leave them different assets.

If you do not update your beneficiaries after major life changes, there may be unintended consequences. For example, if your ex-spouse was a beneficiary before your divorce and you never changed it, they could still inherit some of your assets. To avoid these issues, regularly review and update your beneficiary designations to reflect any changes in your personal life.

#2. Naming Minor Children as Beneficiaries

Another common mistake is naming minor children as direct beneficiaries in a will. It’s not as large a problem with trusts as long as they have rules set for when and how they receive the assets. If you just make minors the beneficiaries of trusts while they’re still minors, then you run into similar problems as a will. While you may have the best intentions, this can create problems in the distribution of assets.

Minors cannot legally inherit property and assets. This means that if they are named as direct beneficiaries, a court will have to appoint a guardian or custodian to manage those assets until the child reaches the age of majority. This process can be time-consuming and costly, potentially depleting the value of your estate.

Instead, consider creating a trust for your minor children and naming a responsible adult as the trustee to manage their inheritance until they reach a certain age or milestone.

#3. Forgetting to Name Contingent Beneficiaries

Many people make the mistake of only naming primary beneficiaries without considering what would happen if those individuals were unable to inherit their assets. For instance, if your primary beneficiary passes away before you, who will inherit your assets? You should have backups in case you can’t update your will or trust before you pass away or become incoherent.

It is important to always name contingent – or backup – beneficiaries in case something happens to your primary beneficiaries. This ensures that your assets will still be distributed according to your wishes and avoids the need for court intervention.

#4. Naming Beneficiaries with Special Needs

If you have a loved one with special needs, it is crucial to carefully consider how they will be provided for after you pass away. Often, people make the mistake of simply naming a special needs individual as a beneficiary without understanding the implications.

Inheriting a large sum of money or significant assets can jeopardize their eligibility for government benefits such as Medicaid or Social Security Disability Insurance. They may need these services to support themselves financially or physically as well.

#5. Not Communicating Your Wishes

Finally, one of the biggest mistakes people make is not communicating their wishes with their beneficiaries. Who is receiving what should not be a surprise at the reading of your will. Yes, surprises can be heartfelt, but when it comes to the passage of your wealth or lack thereof, it should not be a surprise. Surprises can lead to misunderstandings and disputes among family members, causing unnecessary conflict during an already difficult time.

To avoid this, communicate with your loved ones about your estate plans and beneficiary designations. This allows you to explain your reasoning and address any potential concerns they may have.

Contact Our Estate Planning Attorneys for Help

Naming beneficiaries in a will or trust is an important aspect of creating an estate plan. However, it is crucial to carefully consider all factors to avoid common mistakes that could complicate the distribution of your assets.

By regularly reviewing and updating your beneficiary designations, naming contingent beneficiaries, and consulting with an attorney, you can ensure that your loved ones are provided for according to your wishes.

If you need an estate planning attorney, you can contact those at The Law Offices of Diron Rutty, LLC for help.

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