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Why beneficiary designations matter

On Behalf of | Apr 7, 2021 | estate planning | 0 comments

Naming beneficiaries is an important part of your estate planning in California. Most commonly, beneficiary designations are used with retirement accounts and life insurance policies.

Assets with beneficiary designations

If you have a retirement account, you were probably given a beneficiary designation form to fill out when you first opened it. You may have since forgotten about it. This is a common error with beneficiary designations even among people who are diligent about updating their will, trust and other estate planning documents.

In some cases, a retirement account may be the most valuable asset that a person has, but if it lists an ex-spouse, that is who the asset is legally supposed to pass to. The wrong designation can lead to legal conflict and even then, the wrong person may get the asset. This is also the case with a life insurance policy, which people usually buy to ensure that their dependents will be cared for if anything happens to them.

Conflicts with the beneficiary designation

Another common mistake is thinking that a will or trust overrides a beneficiary designation. The opposite is actually the case. A beneficiary designation is a powerful document that transfers what may be the bulk of your assets to your loved ones. When your will or trust contradicts it, most likely, it is the beneficiary designation that will be honored. If you are updating your estate plan, you need to ensure that each document is consistent with the others.

A part of your overall estate planning

There are situations in which it might be useful for you to name a trust as a beneficiary. To determine whether this and other estate planning strategies might be right in your situation, you may want to consult an attorney.