Several different types of assets are passed through beneficiary designation rather than by a will. Maryland residents who are creating or updating an estate plan should be aware of some common errors that people make regarding beneficiary designations so that they can avoid them.
Not completing forms
Life insurance payments and retirement accounts are two of the assets most commonly passed by beneficiary designation. However, some people may fail to fill out these forms altogether. What happens to the assets in this situation depends in part on the rules of the financial institution, but if they go directly to the person’s estate, they must then go through probate. This can cause headaches for estate administration, delaying distribution of assets, creating tax implications and resulting in the assets going to the wrong person.
It is important to fill out these forms accurately, making sure that an individual’s complete legal name is listed so that there is no confusion over who the assets are intended for. The forms should also be reviewed regularly since changes in the family could mean they need to be changed. For example, a common error is leaving an ex-spouse on beneficiary designations.
People may also want to consult a professional to discuss how to handle special situations. For example, minors cannot inherit property, so a trust or another arrangement may be necessary to hold their inheritance. It may also be best to create a trust for an individual with special needs who receives government assistance or someone who may be irresponsible with money.
It is important to understand that beneficiary designations are separate documents from wills and that they should be prepared as part of an overall estate plan. Beneficiary designations also overrule wills if instructions in these documents are in conflict.