Spring Cleaning Your Beneficiaries
Who are your Beneficiaries?
When somebody passes away, one of the most common, but easily preventable, problems is a poor beneficiary designation. It's important to ensure your benefits go to someone, or something, that matters most to you.
Below are six of the most common beneficiary mistakes we see, and how you can clean them up this spring.
1.) No Beneficiary Named
If you have not designated a beneficiary, your life insurance proceeds could be paid to your estate. This means your loved ones may face delays, probate costs, and potential tax complications that wouldn’t happen otherwise.
2.) An Ex-Spouse is Still Listed
After a divorce, many people update their insurance policy but forget to update the beneficiary designation. In most states, your ex-spouse could still receive your death benefit if they are listed, regardless of what your will specifies.
3.) Minor Children Named Directly
While it makes sense to want to provide for your children, minors cannot directly inherit a life insurance benefit. If you name a child under 18 (or 21 in some states) as a beneficiary, and you pass before they come of age, a court will appoint a guardian to manage the funds. It’s possible that the court-appointed guardian is not someone you would have chosen.
Alternatively, you can consider setting up a trust for minor children and naming a trusted guardian in your will to manage the funds until your children reach adulthood. This ensures the funds earmarked for any minor children are handled according to your wishes.
4.) Forgetting About Special Needs Considerations
If you have a loved one with disabilities who receives government benefits like Medicaid or Supplemental Security Income (SSI), naming them as a direct beneficiary could disqualify them from their programs. They would be forced to spend the inheritance down until they regain eligibility.
To determine if a special needs trust is appropriate for your situation, speak with your account manager. Special need trusts allow you to provide financial support to your beneficiary without jeopardizing their access to essential government assistance.
5.) No Contingent (Backup) Beneficiary
Life is unpredictable. If your primary beneficiary passes away before you or is otherwise unable to receive the benefit, and you have not designated a contingent beneficiary, the death benefit may be allocated to your estate. Additionally, it could be subject to probate, delays, and potential creditor claims.
6.) Outdated Beneficiaries After Major Life Event
Marriages, births, and deaths in your family may impact who you want to protect. If you set your beneficiaries years ago and have not looked at them since, there is a good chance they no longer reflect your current wishes.
Reviewing your beneficiaries can help ensure your designations align with your life today, not your life from 5 or 10 years ago. It doesn’t take much time, and it can save your family from significant stress down the road.
If you have questions about your current designations call us today at (805) 687-3225 or send an email to info@petersmilam.com. Let's make sure your loved ones are protected the way you intend.
*Please note: While this reminder focused on life insurance beneficiaries, the same considerations apply to bank accounts, 401(k), investments and more.