Many accounts, like retirement and investment accounts, allow you to designate the beneficiaries of the account upon your death. It’s a convenient way to distribute these accounts, and typically you make the selection when you open the account.
What many folks don’t realize is that when they get a divorce or make a new will, these beneficiary designations do not automatically change. This is a detail that if overlooked can frustrate even the most expensive and thorough estate plan, whether you have a will, a living trust, both or neither. Don’t let your assets go to your ex. - Keep your beneficiary designations current!
Making your estate plan begins with thinking about your values and your family and having conversations with your spouse and/or family members. Consider all the details: the financial, the legal, and the shared understandings. Estate Planning documents and beneficiary designations should be kept up to date; both you and your spouse should know the location of all financial accounts and have the information to access them; both you and your spouse should participate in regular updates from your financial advisor.
You should discuss more than how your assets will be divided. Make plans for possible disability and long term care. You should talk about who will be acting on your behalf as your agents, those people who represent your interests through a power of attorney, will or trust. Picking the wrong people can frustrate your plans, whether due to lack of capability, dedication or trustworthiness. You need to ensure that only the right people hold your durable power of attorney or serve as executor or trustee. Some people are better suited for certain duties and it is not a comment on your love for or value of your heirs to make wise choices.
And of course, you will also discuss your inheritance – choosing who will benefit from your estate. Oftentimes, physical items are difficult to split up. How you split up sentimental family items can start a fight, or, if thoughtfully handled ahead of time, end fights before they happen. This is a topic worth discussing with your heirs and beneficiaries. That way everyone can express what things they may want and why. Family heirlooms represent an emotional connection that may even be more important to family members than financial assets. The estate you leave is not just about money it is also about the memories and shared values that hold families together.
Money can be easily divided among your beneficiaries in any proportions that you believe are appropriate. Wills direct only the assets owned in your name when you die. Trusts can only distribute property held by the trust. Financial and retirement accounts with beneficiary designations don’t care about your will and are not interested in your trust. Plan administrators will pay the people you told them to pay when you last filled out the form. If you named the two children you had when you opened the account and have four when you die, half of your children will split the account and half will get nothing. If your ex-spouse is still named, he or she will be surprised and remember you fondly; your current spouse and children will also be surprised. Their reactions will be less favorable.
Keeping your plan current is essential in avoiding unintended consequences. Your priorities and goals for your estate plan should dictate the structure of your plan and the creation of the documents required to make it a reality. The critical first step is starting the right conversations with your spouse and family members. Continue the conversation with financial advisors and estate planning attorneys who can guide you in building the right plan to achieve your goals. Make certain that your beneficiary designations and other estate planning documents work together to achieve the right result.
James M. Miskell received his law degree from the University of Georgia in 1993. His Asset Protection and Estate Planning Law practice is located in Lawrenceville, Georgia. He offers free educational workshops and consultations to assist clients as well as fellow professionals in creating individualized solutions.