Houston residents who wish to ensure that their wealth passes to descendants or other individuals often establish trusts and create wills. However, they may be making one major estate planning mistake without realizing it: not changing their named beneficiaries.
Individuals may designate certain beneficiaries in their life insurance policies, mutual funds, checking account, savings account, employer-sponsored retirement plans, college savings plans and IRAs. A person generally establishes a beneficiary when he or she opens up these types of accounts. However, the person's circumstances may have changed since the opening of the account. If a person dies, his or her assets in these accounts may pass to the wrong person, even if a will designates otherwise.
There are many circumstances in which a person may want to update his or her beneficiaries. One major reason would be if the person gets divorced or remarried. Another circumstance that requires a change is if the primary or secondary beneficiary died. Another important reason to update a beneficiary designation is if the person had a child. A new child may be included when the estate is split. However, a minor should not be designated as a beneficiary. A couple of other situations which may trigger making a new designation is if the person rolled over a retirement plan or if the financial institution changed ownership.
Individuals who want to protect their dependents and their wealth may consult with an elder law attorney. This individual can periodically review beneficiary designations and offer advice about any necessary changes in the person's estate plan. An attorney may be able to help establish secondary beneficiaries and contingent arrangements for the person's estate so that his or her wishes are carried out.
Source: Forbes, "The Big Estate-Planning Goof You May Be Making", December 16, 2013