Many people in California underestimate the importance of beneficiary designations while planning their estate. Beneficiary designations can allow certain financial assets to pass directly to your heirs, skipping the probate process. A little mistake on your beneficiary designations can cause big problems.
Name beneficiaries on every account
The first estate planning mistake you can make on your beneficiary designations is not using all of them. All of your checking, savings, retirement and investment accounts should have a beneficiary listed who will receive the asset after your death. You may also include a secondary beneficiary just in case the primary beneficiary has died before your account could be updated.
Keep beneficiary designations up-to-date
It’s important to reevaluate your beneficiary designations from time to time to determine whether a name should be changed on one or more accounts. Key times to do this are following major life events such as the birth of a child, a marriage, a divorce or the death of one of your beneficiaries. You do not need to list the same beneficiary on every account.
Remember special circumstances
Sometimes, special circumstances need to be considered before listing a loved one as the beneficiary on one of your assets. For example, it could be complicated for a minor child to inherit the contents of your checking account directly. The child would be required to have a conservator to manage the money until they turn 18, which could be costly.
Another issue to consider with beneficiary designations is whether any of your beneficiaries are receiving government benefits. Individuals with special needs could potentially lose access to government benefits if they inherit too much wealth. While going over your beneficiary designations, you may want to consider other options, such as a trust, for providing for minors and special needs family members.