Mistakes to avoid when making beneficiary designations

On Behalf of | Aug 29, 2022 | Estate Planning |

Beneficiary designations may make it easier to transfer bank accounts, retirement accounts and other assets without the need for probate. This is because ownership of such items automatically transfers to the beneficiary without the need to seek a Texas probate judge’s approval. However, it’s important that such designations are made properly to ensure that items don’t revert back to your estate.

List more than one beneficiary

Failing to make a beneficiary designation may be the biggest mistake if you have assets such as an IRA or a life insurance policy. However, failing to list more than one beneficiary is also an error that you don’t want to commit. If your primary beneficiary dies, is incapacitated or is otherwise unable to inherit your property, a secondary beneficiary can do so on that person’s behalf.

Small issues can result in large problems

It may be a good idea to review your beneficiary designation with a team of advisers at least once a year. Doing so may make it easier to catch minor issues such as writing down the wrong name. It may also enable you to add or remove beneficiaries or otherwise edit a designation form to ensure that it meets your estate planning needs.

What happens if a designation is invalidated?

In the event that a beneficiary designation is invalidated, the asset associated with it will likely go back into your estate. State law may require that it then go to a parent, former spouse or someone else who you may have a strained relationship with. Even if you have a good relationship with the person an item goes to, an intervention by the state still means that your final wishes won’t be carried out.

Ideally, you will create beneficiary designations the moment that you open a bank, brokerage or another type of financial account. It’s also generally a good idea to review them regularly to ensure that there are no errors that might derail your estate plan.