Carissa Giebel column: Updated beneficiary designations important
Apr. 28, 2014 |
Too often people forget to update beneficiary designations on asset accounts they own, which can mess up their entire estate plan. Beneficiary designations should be updated on any bank accounts, investment accounts, retirement accounts, company benefit plans, life insurance policies, certificates of deposit, and any other asset accounts you own.
This is especially important for those who have been divorced and still have their ex-spouse named as a beneficiary. The Supreme Court has ruled that the beneficiary designation contract trumps any state law that would automatically disinherit an ex-spouse, and if the ex-spouse is named as beneficiary, then that is who will inherit the asset. This is also true despite any divorce agreements.
Even if you have your spouse named as beneficiary on assets, you want to take it a step further and name secondary beneficiaries, in case your spouse would predecease you. If you own an account jointly with a spouse, your spouse will likely become the owner of the account upon your death. However, you still want to name beneficiaries to receive the account at the second death.
If you have your children named as beneficiaries on an asset, and since completing the form, more children have been born or adopted, you likely want to get those beneficiary designations updated to avoid disinheriting the children who have not yet been named. If one of your beneficiaries predeceased you, and you want their share to go to their children (perhaps your grandchildren), you will likely need to update your beneficiary form to express those wishes.
Making sure your beneficiary designations are up to date is so important because it trumps your will or trust plan. Despite naming beneficiaries in your will or trust, the persons named as beneficiaries on the beneficiary designation forms are the ones who will receive the money, even if your will or trust says otherwise. This is why it’s important to make sure your named beneficiaries are coordinated with your overall estate plan.
Another benefit of naming beneficiaries on assets is that those assets will avoid probate, which is the court process of administering your will. Probate can be costly and time consuming, whereas named beneficiaries will receive the money from the accounts much sooner.
Rarely do you want to name your estate as a beneficiary on an asset. On rare occasion it might make sense, but more often than not, all that it would do is take an asset that could completely avoid the delays in the court system, and now funnel it through court, adding extra administration costs and delaying when the beneficiary will receive the inheritance. Usually you want to name people, rather than your estate.
Beneficiaries can even be named on real estate now in Wisconsin. There are deeds that can be drafted where you can name beneficiaries to receive the real estate if you would still own it when you pass. This real estate would then avoid going through probate. There can be some downsides to this too, though. If multiple beneficiaries are named, at death, there will be multiple owners on the real estate, possibly making the management and sale more difficult. If this is a concern, a living trust would be a simple solution to avoid that potential problem.
Don’t delay and make sure all your beneficiary designations are updated and coordinated with your estate plan.