Choosing who will inherit your assets is one of the most essential steps in estate planning. Whether you are creating a will, establishing a trust, or completing beneficiary forms for retirement accounts or life insurance policies, the decisions you make have lasting consequences. Unfortunately, many people make avoidable mistakes when naming beneficiaries. These missteps can create unnecessary delays, tax problems, or even disputes among family members.
Not Updating Beneficiaries After Major Life Events
Life changes, and your beneficiary designations should reflect that. Too often, people forget to update their choices after significant events such as:
- Marriage or divorce
- The birth or adoption of a child or grandchild
- The death of a previously named beneficiary
If beneficiary forms remain unchanged, assets may end up going to someone you no longer intend to benefit. For example, an ex-spouse might inherit a retirement account simply because the form was never updated.
Naming Minors Without a Trust or Guardian
Another common error is naming a minor child directly as a beneficiary. Children cannot legally manage inherited funds, so the court may need to appoint a guardian. This process can be costly, time-consuming, and may not reflect your wishes. A better option is to create a trust for the benefit of your child, naming a trustee you trust to manage the assets until the child reaches an appropriate age.
Overlooking Special Needs Planning
If you want to leave assets to a loved one with a disability, naming them outright as a beneficiary could jeopardize their eligibility for important government benefits. Instead, many families use a special needs trust. This tool allows you to provide financial support while protecting access to essential services such as Medicaid or Supplemental Security Income (SSI).
Forgetting to Name Contingent Beneficiaries
Primary beneficiaries are important, but what happens if that person passes away before you? Without a contingent (backup) beneficiary listed, your assets may be distributed according to state law or may flow into your estate, triggering probate. By naming both primary and contingent beneficiaries, you help ensure your wishes are carried out without interruption.
Naming Your Estate as a Beneficiary
It might seem simple to list your estate as the beneficiary of an account or policy, but this choice often creates problems. Assets left to the estate must go through probate, which can delay distribution and expose the funds to creditors. There may also be additional tax consequences. In most cases, naming individuals or trusts directly is a more efficient and protective approach.
Failing to Coordinate with the Rest of Your Estate Plan
Beneficiary designations operate independently of your will or trust. If the two are inconsistent, the designations on file with financial institutions will typically control. For example, if your will leaves an account to one child but the beneficiary form names another, the form will prevail. That’s why it’s important to review your beneficiary choices as part of your broader estate plan, keeping everything consistent and up to date.
How We Can Help
Avoiding these mistakes requires more than just filling out a form. Beneficiary designations should be reviewed regularly and coordinated with your will, trusts, and overall estate planning goals. At E.A. Goodman Law, LLC, we work with individuals and families across New Jersey to make sure their beneficiary designations are properly structured, legally sound, and aligned with their wishes.
Planning ahead today can prevent confusion, conflict, and costly errors tomorrow. Contact us to schedule a consultation and let us help you create an estate plan that protects your loved ones and honors your intentions.
Frequently Asked Questions
What happens if I don’t update my beneficiary designations?
If you fail to update beneficiaries after a marriage, divorce, or other life event, your assets may go to someone you no longer intend. Financial institutions will follow the most recent beneficiary form on file, even if it conflicts with your will.
Can I name a minor child as my beneficiary?
You can, but it often creates complications. Because minors cannot manage inherited funds, the court may appoint a guardian to handle the money. A trust is usually a better way to provide for a child.
Why should I name a contingent beneficiary?
A contingent beneficiary serves as a backup if your primary beneficiary passes away first. Without one, assets may be tied up in probate, delaying distribution and potentially leading to outcomes you did not intend.
Posted in: Estate Planning