April 11, 2017
Quick Estate Planning Tip | Updating Your Beneficiary Designations
An essential element of estate planning is reviewing and updating your estate plan on a regular basis. Many life events can create the need to update an estate plan, including divorces, the birth of a child, marriages, or deaths in the family. Even if you have chosen to leave your money to a charity, you need to periodically review your designations to ensure the charity is still in operation.
It is extremely important to review your beneficiary designations for retirement plans and life insurance policies after a divorce. A divorce does not automatically remove an ex-spouse as a beneficiary on a retirement plan or life insurance policy. Therefore, you could have a situation where your ex-spouse inherits a substantial portion of your estate because you failed to change the beneficiary after a divorce.
Likewise, if you fail to update your beneficiary designations after the loss of a loved one, you could have a situation where your retirement account or life insurance policy is subject to your probate estate. The funds would flow through your estate and be disbursed according to the terms of your will. Therefore, instead of choosing the beneficiary, all heirs that inherit through your estate would receive a portion of the funds.
Even if you do not have any major life changes, you need to review and update your beneficiary designations each time you review and update your estate plan. Some people review their estate plan every year while others review the plan only when they experience a major life event. As experienced Michigan estate planning attorneys, we feel you should review your estate plan at least once every year or other year and definitely after experiencing a major life event.
Choosing Your Beneficiary
As part of estate planning, we discuss choosing beneficiaries for retirement accounts and life insurance policies. Choosing a beneficiary should involve more than simply choosing the person you want to receive your money after your death. First, you must choose a beneficiary, or your retirement account and life insurance policy may be subject to distribution according to state law. The only way to control who receives the money from your life insurance and retirement plans is to name a beneficiary.
However, you should choose your beneficiaries carefully. For example, you want to consider tax consequences for the individual. You also want to consider the person’s age. If you name a minor as a beneficiary, the court must be involved to oversee the minor’s inheritance until he or she is of age to control the funds. An experienced estate planning attorney can provide advice and guidance when choosing a beneficiary.
Naming a Trust as Your Beneficiary
In most situations, you may want to consider a trust as your beneficiary. A trust can be very useful for individuals whose assets will exceed the estate tax exclusions. By naming a trust as the beneficiary, your heirs may avoid paying additional taxes, but you can ensure that your loved ones receive the benefit of the money in your retirement plans and life insurance policies. Furthermore, you can provide for the care and education of minor children by using a trust funded by retirement money and life insurance funds.
Naming a well drafted trust as a beneficiary can also allow your loved ones to receive the assets protected from divorce, lawsuits, bankrupticy, etc. Not all trusts allow for these provisions, so you need to review your living trust.
Call The Elder Care Firm of Christopher J. Berry, CELA For More Information
As with any other part of your estate plan, you should not make any changes without consulting with your estate planning attorney. A minor change in your estate plan can have ripple effects that undo some of the provisions you have put into place to protect your loved ones.
Our law firm has offices in Brighton, Livonia, Novi and Bloomfield Hills, to better serve our clients in Livingston, Oakland, Washtenaw, and Wayne Counties. Contact our office by calling 888-390-4360 or use our online contact form to request more information or schedule an appointment