The Importance of Beneficiary Designations

One of the most common excuses people use to avoid estate planning is that they simply don’t have enough assets to justify the cost of creating a plan. Estate planning encompasses more than just your assets as you will name guardians for your children. However, people often have more assets than they realize. For example, how much money is tied up in your 401(k), IRA, or life insurance policy?

When you meet with an estate planning attorney, they look at these unique assets and develop a plan that ensures each asset will reach your designated beneficiaries. Many people overlook or don’t realize that a beneficiary designation supersedes anything stated in a will or a trust. Consider the person who gets married and designates their spouse as the beneficiary of the retirement account. 

Years later, they get divorced but fail to update their plan. Instead of meeting with an estate planning attorney, the person with the retirement account creates a DIY will online and chooses their new spouse as the beneficiary. Is this effective estate planning? Maybe. But if there is a divorce and no update to the beneficiary designation then no. Because the person’s first spouse is still listed as the beneficiary, many assets will pay to the prior spouse regardless of what the will states. To take it one step further, even if the person was successful with leaving their retirement account to the estate, they may be unaware of the significant tax consequences that come with that decisions. 

Take a Closer Look at Non-Probate Assets

Retirement accounts, life insurance policies, and assets with a payable-on-death (POD) designation do not require probate. Ownership will be transferred to the chosen beneficiaries without any need for probate. Another element we need to consider is the unintended consequences of failing to update your beneficiaries. In the previous section, we outlined the possibility of accidentally leaving your retirement account to a former spouse. Although that is a distinct and plausible possibility, there are more serious ones to think about. 

You may want to avoid leaving someone money for several reasons. For example, the person you designated initially may have developed a drug or alcohol problem, and they should not be entrusted with large sums of money for their well-being. On the other hand, you may have a special needs child. As a parent, you want to ensure they are provided for. These children (and adults) may rely on governmental benefits and programs. Leaving them a lump sum may create a scenario where they are no longer eligible to receive those benefits along with assets insufficient to provide for their needs beyond a few months. 

Allow Us to Help You Build the Right Estate Plan 

When you work with the Law Offices of Debbie J. Cunningham, we take the time to learn what assets you possess to ensure they reach the people you want to receive them. Regardless of the asset, you must understand all the consequences of assigning it to a particular person. You deserve an estate plan that gives you peace of mind. The best way to do that is to work with an attorney who can explain the law to you and will create a plan that reflects your wishes. We want you to leave our office with confidence. Contact our office today to schedule your consultation


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Law Offices of Debbie J. Cunningham

Debbie Cunningham is an Irving attorney providing affordable estate planning to the Dallas/ Fort-Worth areas. She understands the steps you should take to protect yourself and your loved ones. Debbie is family-focused and wants to ensure her clients are fully informed on the options that are available for their families. Debbie’s own blended family has given her valuable insights into the complexities of family dynamics.

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