The Importance of Updating Your Beneficiary Designations
Bank accounts, retirement accounts, and life insurance policies often constitute a large portion of a person’s net worth, but the beneficiary designations on these documents are not often checked and/or updated. Siedentopf Law shares advice on selecting a beneficiary and when to update your beneficiary designations.
A beneficiary designation is a kind of estate plan in that it provides a mechanism for the transfer of assets. These designations are commonly found on life insurance policies, retirement accounts, and even some bank accounts. The person creating the account or policy can identify a beneficiary and, after he or she passes away, the account assets will be paid directly to the beneficiary. These types of accounts often constitute a large portion of a person’s net worth, but often the beneficiary designations are not checked and/or updated.
Common Misconceptions
Many people think they need to choose between a Will or a beneficiary. They believe that one will win out over the other. The answer, quite simply, is that these are two very different terms that are NOT interchangeable. Below we’ll explain how a Will is different than a beneficiary designation, but how you can name a beneficiary designation within a Will.
What is a Beneficiary?
A beneficiary is an individual (or entity) named within a Will, insurance policy, or otherwise designated to received monies, properties, or other assets owned by another.
Click here to learn more about the difference between Heirs and Beneficiaries.
What is a Will?
A Will is a document that specifies who will get your assets when you die. The people, or organizations that you name to get your assets are called “Beneficiaries.” But a Will is only one way to name a Beneficiary. You can name a Beneficiary in an insurance policy, a retirement account, and other types of assets. These types of assets can be set up to go through your Will, in which case the Beneficiaries you name in your Will control who gets the asset. More often, however, these assets are set up to be paid directly to your named beneficiaries. In that case, the Will has no control over their distribution.
Naming a Beneficiary
Designating a beneficiary should be a thoughtful and deliberate process, as naming the wrong person could create unintended consequences and a mess for your heirs. Beneficiary designations do not pass to the people or entities named in an individual’s will. Instead, the assets bypass the probate process and go directly to the named beneficiaries on the insurance policy, etc, in question. Avoiding probate can be appealing, however, as these designations override a will, they need to be carefully considered.
Issues to Consider
For a person creating a life insurance policy or retirement account, there are some issues to be considered before naming a beneficiary. First, the beneficiary should be financially responsible and able to handle potentially large sums of money. Second, a plan should be in place in case the named beneficiary is incapacitated or dies before you. Third, if the named beneficiary is still a minor when they inherit assets, the Court may step in to appoint a guardian or conservator for the child. Fourth, if someone neglects to name a beneficiary, the non-retirement funds will typically flow into a person’s estate – which may or may not be what they wanted to happen with those assets.
Updating Your Designations
Just as important as naming an appropriate beneficiary, is making sure to review an d update those beneficiary designations. The designations should be checked after major life events such as marriage, births, divorce, or death of loved ones. (Georgia law does not automatically revoke beneficiary designations upon divorce, as some states do.) Reviewing those designations and updating them based on your current status means that your wishes will be honored as you intended. It is also a good idea to keep a copy of all beneficiary forms, just in case your financial institution misplaces the paperwork.
For more information about beneficiary designations, to better understand what designations control the distribution of your assets, and to further understand how Georgia law impacts the distribution of life insurance policies or retirement plans, visit the Siedentopf Law website EstateLawAtlanta.com, Schedule a phone or video consultation, or call us today at (404) 736 – 6066.
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