In Michigan, your estate planning involves choosing beneficiaries to receive your assets. Yet, some people may not understand that their will is not the final say for all beneficiaries. Certain assets, such as retirement accounts, have beneficiary designations that supersede a will.
Naming your beneficiaries might seem simple, but if you make any errors in the process, the results can unnecessarily cost your estate a large amount of money. The following issues represent the most common mistakes people make regarding their beneficiaries.
Forgetting to name beneficiaries
A life insurance policy, annuities, 401(k) plans and similar accounts all pass to heirs outside of the probate process. When you set up these accounts, you designate beneficiaries, and the proceeds will pass directly to them when the time comes. However, if you have not named any beneficiaries, the profits will often go to your spouse. If no surviving spouse exists, the accounts must go through costly and time-consuming probate to become part of your estate before your heirs can receive the funds.
Not getting the names right
Suppose during estate planning, you had named your beneficiaries but mistakenly misspelled their name or assumed their name was “Bud,” when the person’s legal name was Richard. The confusion can delay the transfer of your assets for months while the beneficiary works to prove their identity.
People may change their names due to marriage or divorce, and some families have individuals with a Junior, Senior, or III which confuses matters if you don’t clarify that part in the beneficiary paperwork. In the case of beneficiaries with terribly similar names, ambiguity can lead to litigation.
Not considering circumstances
In some cases, designating beneficiaries to receive money directly can trigger tax liabilities and other issues. In addition, individuals under 18 cannot inherit funds without having a conservator acting for them, which can become costly.
Special needs individuals may lose crucial government funding if they inherit and receive a lump sum. Any heirs with difficulty managing money may find their inheritance spent very quickly. In these situations, you can place your assets into a trust, make your loved ones beneficiaries of the faith, and provide specific directions for how and when to distribute the money.
Not reviewing or updating
Relationships evolve, and if you never review or update your beneficiaries, an ex-spouse or a friend you no longer speak to may inherit some of your assets. Likewise, if you bring a baby into the world or remarry and have stepchildren, reviewing your beneficiaries ensures you include your intended loved ones and remove people who are no longer a part of your life.
Awareness of how to manage your beneficiaries can ensure that your intended beneficiaries receive your assets as intended.