Unfortunately that can lead to disastrous results.
For example, I once received a heartbreaking call from a woman once whose husband had just passed away. Her husband had acquired an insurance policy before they got married. He had named his brother as the beneficiary and neglected to update it after he got married. When he passed away suddenly and unexpectedly, the proceeds of the policy passed to his brother, not his wife and new baby.
Below are some important things to remember about beneficiary designations:
- Unlike assets such as real estate, assets such as bank accounts, insurance policies, or retirement plans for which you have named a beneficiary do not have to go through the probate process. The proceeds of those accounts, policies or plans will be delivered to the beneficiary upon presentation of the death certificate and verification of the beneficiary’s identify.
- Regardless of what you say in your Will, your beneficiary designation will control. It doesn’t matter if your Will says that your Wife will inherit everything in your estate. If you identify your brother as the beneficiary of that insurance policy, your beneficiary designation will trump your Will.
- Naming a minor child as a beneficiary of an insurance policy or retirement plan is usually not a good idea. Minor children don’t have the legal capacity to own property. As a result, those assets would be subject to a guardianship and will be distributed to the beneficiary when he or she turns 18, regardless of how much is in the account or whether the beneficiary has the maturity to handle the property. Having those assets funnel to a trust you’ve created for your minor children is a wiser choice. Your attorney can instruct you on how to do this.
Coordinating beneficiary designations is a very important part of any estate plan. So if you haven’t checked your designations recently, make a point of reviewing them at your earliest convenience.
You might be surprised at who your beneficiaries are!