You know what they say about the best-laid plans….or maybe not? In our book, the best-laid plans are the ones you review again and again, which is especially true for your estate plan.
Say something happened to you and your family had to care for your estate. Wouldn’t you want to have all your ducks in a row, so they don’t have to wrangle them?
And what happens if, when they have those ducks, they find out they aren’t the right ducks. There were newer ducks no one knew anything about! And who do those ducks belong to exactly—in other words, who is the beneficiary of the ducks?
This is why having an estate plan that clearly outlines what you have and where you want it to go is so important for your family.
A Fidelity investment analysis showed that “60% of people don’t have a beneficiary on their retirement account.” Don’t let yourself be one of them!
Today, we will walk you through an estate plan, why beneficiary designations are so powerful, and how updating your beneficiary information can streamline the wealth transfer process.
What Is An Estate Plan?
An estate plan is the preparation of tasks, documents, etc., to manage a person’s assets in the event of incapacitation or death.
But why is an estate plan so important?
Your estate plan gives guidance on how to preserve, manage, and distribute your assets after you pass. Those directions instruct your loved ones after you are gone and give you peace of mind that your affairs are in order. You always hope the instructions won’t be needed anytime soon, but you never know.
What if you were in an accident tomorrow? Would your children or family clearly understand where you wished your money, belongings, etc., to go? If not, this could cause confusion, frustration, and possible legal woes for those left behind.
So, where should you start?
Here are the basics of an estate plan:
- Power of Attorney (Financial and Medical)
- Guardians and trustees for minor children
- End-of-life arrangements
If you have yet to create an estate plan or need to double-check what additions to make to an existing plan, refer to this helpful chart.
After that, reach out to a financial professional who can help you set up or enhance your estate plan.
So now that you know all the ducks you have, where should they go? For that, you’ll have to name beneficiaries.
While all your estate planning tools serve a unique purpose, the beneficiary designation is perhaps the most overlooked and effective.
What Is A Beneficiary?
A beneficiary is a person or entity that receives something from another person/source. In your estate plan, your beneficiaries receive certain assets like retirement accounts, insurance proceeds, real estate, or other assets.
Here’s the kicker: a beneficiary doesn’t need to be an individual person! You can also designate a charity, non-profit, or trust as a beneficiary. Say you held the Red Cross close to your heart all your life. You loved their mission, maybe even donated blood! You can name them as a beneficiary, and they will receive whatever you allot to them.
However, many people select loved ones as beneficiaries and want to leave them a meaningful inheritance.
You can also select more than one beneficiary. For example, say you name all three of your children as the beneficiary of your life insurance policy. Should you pass, they would split the death benefit equally. There are several ways you can use beneficiaries to suit your unique family situation.
Why Do I Need To Choose Beneficiaries?
Naming beneficiaries ensures your assets (money, house, business, or other possessions) go where you want. Additionally, it leaves no confusion as to what your wishes are, preventing hassle and stress for loved ones.
But here’s their real superpower: official beneficiary designations supersede what’s written in your will.
Yes, you read that right.
Official beneficiary designations on your retirement accounts, life insurance policy, and other avenues are priority #1 regarding who gets what.
So if you name your sister as the official beneficiary on your life insurance document but name your spouse in your will, the money will go to your sister. This makes it vital to keep everything as updated as possible, or you could inadvertently cause a lot of family drama you can’t solve.
Naming beneficiaries can also save time and potentially money!
When you don’t name a beneficiary, the estate distribution process slows. Why? Because your loved ones will likely need to attend probate court to get everything settled. Instead of deciding what you’d like to happen to your house, retirement account, etc., the courts will decide based on local law.
Probate takes time, money (in legal fees), and is a public proceeding. Wouldn’t it be nicer to leave behind a clean and organized plan instead of a pile of paperwork and confusion?
Properly naming beneficiaries also financially supports your loved ones. Removing this obstacle can give them space to grieve without worrying about paying for the funeral, finding the correct paperwork, or researching legal jargon.
How Often Should I Update My Beneficiary Information?
Anytime you open a financial account or buy life insurance!
You’ll also want to review and potentially update this information regarding your life circumstances. Life can be unpredictable, and almost anything can happen. Maybe you are experiencing:
- Divorce or remarriage
- A new child
- Death of a beneficiary (pro tip: most accounts allow you to select a primary and contingent beneficiary. Try to do both.)
- New job
If you are experiencing even one of these difficult instances or anything else that may seem like it could alter your beneficiary situation, make sure you update your information! Having the most up-to-date beneficiary information can clear up any confusion later on.
Ready to update your estate plan? Grab this helpful checklist to ensure you don’t miss anything important.
The Ducks Are All Here!
As you can start to see, retaining an updated estate plan can streamline your finances and maintain strong family rapport. Be sure to select your beneficiaries with care, as they have powerful implications for the wealth transfer process.
Whether you learned something new or realized that you have to tie up some loose ends, our team is here to help.
If you want our help setting up an estate plan, have questions about adding or altering existing beneficiaries, or inquire about your estate plan after looking at our checklist, give us a call today.
We are excited to ensure your estate plan is complete with updated beneficiary information so your ducks are where they should be!
The contents of this article are for general information and educational purposes and should not be construed as specific investment, financial planning, tax, accounting, or legal advice. Please consult with a professional advisor before taking any action based on the contents of this article.
All investment and financial planning strategies involve risk of loss that you should be prepared to bear. We cannot guarantee any investment performance whatsoever, and past performance is not indicative of potential future returns.