Wouldn’t it be great if estate planning was a “one and done” type of task? If life came without change, then it could be, but we all know change is inevitable. That’s why it’s so important to update your estate plan needs over time, too. While it may seem like a hassle, failing to update your beneficiaries can actually have long-reaching effects that you’ll want to avoid. If you’re not convinced, let’s go over 4 key reasons why keeping your beneficiaries up to date is so valuable!
What is a Beneficiary?
Before we jump into the reasons why it’s so important to update your beneficiaries, let’s first review what a beneficiary actually is. To define the term, a beneficiary is the person or entity that will receive the proceeds of your accounts upon your death. You may name a beneficiary on:
- Last will and testament
- Living trust
- Life insurance policies
- Retirement accounts
- Investment accounts
- Company benefits plans
- Bank accounts
- Pensions
- Veterans’ benefits
- And any other assets you own!
It’s always good to name both a primary beneficiary and a contingent beneficiary. That way, if the primary beneficiary were to die before you, the contingent beneficiary would inherit in their place.
Now that you have an understanding of what a beneficiary is as well as what types of accounts they are associated with, let’s talk about why it’s essential to keep your beneficiary information up to date!
4 Reasons to Keep Your Beneficiaries Up to Date
Reason #1 – Your Relationships Are Going to Change Over Time
If one thing is certain, the relationships in your life are going to change. Whether you’re a young person who hopes to marry one day or you’re an older adult who may eventually face the death of a spouse, things are going to change, and most likely, your listed beneficiaries will be affected.
When you go through a major life change, like marriage, birth of a child, death of a spouse, divorce, etc., make sure you update your beneficiaries. If you don’t, your family may face unintended consequences. Let’s look at a few examples.
Marriage
If you marry and don’t add your new spouse as a beneficiary, your spouse may not inherit anything. Of course, it all depends on who your beneficiaries are. If you are a young person and have always named your parents as beneficiaries, they will hopefully make sure that your spouse is taken care of. Unfortunately, that’s not always the case, especially with estranged relationships. The best route is to update your beneficiaries to include your new spouse.
Divorce
Let’s say you marry in your twenties. You have two children and set up a life insurance policy, naming your then-spouse as beneficiary. Fast forward 20 years. You have divorced and re-married, and now, you have a child with your new partner. If you never updated your beneficiaries on your policy, your ex-spouse would inherit, leaving no proceeds for your current spouse or any of your three children. By updating your beneficiaries as needed, you can avoid this unpleasant situation. For more helpful tips on estate planning for a blended family, click here.
Deceased Beneficiary
In some cases, you may name a beneficiary who happens to die before you. If you don’t update your beneficiary to someone new, it can cause complications down the line and may require your family to go to court to straighten things out. And in some cases, you can’t untangle things, and your family won’t receive your assets.
Even after only a few examples, it’s easy to see how complications creep in quickly. By staying on top of your beneficiary updates, you can ensure that everything goes smoothly for your loved ones.
Reason #2 – Your Beneficiary Designations Supersede Your Legal Will
Did you know that the United States Supreme Court ruled that beneficiary designations supersede the provisions of a will or trust? What does that mean? It means that keeping your beneficiaries up to date is more important than ever before.
Even if you write a legal will, whoever is listed as your beneficiary on the individual accounts is the person who will inherit. So, if you write in your legal will that your spouse should inherit the proceeds of your investment account, but your parent is named as the beneficiary on the account, your parent will inherit, if they are still living. If they aren’t living, things get more complicated from there, and your spouse may need to go to court to receive any proceeds at all.
In situations where there is divorce and re-marriage, it’s essential to update beneficiary information. If you don’t, an ex-spouse may receive support you intended for a current spouse. By keeping things as current as possible, you can prevent headache and heartache for those you love.
Reason #3 – You Eliminate Confusion and Avoid Probate Court
Reflecting back on what we’ve already discussed, it’s easy to see how quickly things can get confusing with your estate plan and beneficiary selection. By keeping your beneficiaries up to date and accurate, you eliminate unnecessary confusion for your loved ones.
By matching up your beneficiary information with your legal will, you can make sure that your intentions are crystal clear. With everything clear-cut and in agreeance, your family can avoid the costly expense of probate court and receive the financial benefit of your accounts much sooner.
Reason #4 – You Ensure Your Loved Ones’ Financial Security
Without the correct beneficiaries listed on your financial accounts, the wrong person may receive the proceeds of your hard work. To ensure that your loved ones receive everything you want them to, it’s best to stay on top of your beneficiary information. The last thing your loved ones need after your passing is to untangle your legal affairs and possibly go to court to ensure their own financial security. And even in court, they may not win because many beneficiary mistakes are irreversible.
What’s Next?
Now, it’s time to go check your accounts and make sure that your beneficiary information is accurate and up to date. Has your beneficiary moved or died? Have phone numbers changed? Are your relationships different now? Would like someone else to inherit? All of these things could trigger the need to update your beneficiary information.
While it would be great if you could do everything once and be done, life isn’t always that straightforward. Consider reviewing your beneficiary information every two – three years (or whenever you have a significant life change), so that you don’t fall into this common estate planning mistake. Instead, you will protect your family’s interests and well-being, both today and in the future.
DISCLAIMER: Individual circumstances and state laws vary. Only undertake estate planning with the help and assistance of an attorney licensed in your state.
