One of the most important aspects of estate planning is designating beneficiaries for your assets, which helps to ensure that your assets are distributed according to your wishes in the event of your death. However, beneficiary designations can be easily overlooked or forgotten about. It’s important to understand why beneficiary designations are important and how to set them.
What are beneficiary designations?
In estate planning, beneficiary designations are the people or organizations that you designate to receive your assets in the event of your death. These can include items such as life insurance policies, retirement accounts and bank accounts. You can name primary and contingent beneficiaries for each asset. Primary beneficiaries get to receive the assets first, while contingent beneficiaries only get to receive the assets if the primary beneficiaries have died.
Why are beneficiary designations important?
If you don’t have any beneficiary designation in place, then your assets will be distributed according to the laws of intestacy, which may not be what you want. For example, if you’re unmarried and have no children, your parents would likely inherit your assets under the laws of intestacy. However, if you want your assets to go to your siblings or other relatives, you would need to designate them as beneficiaries.
Additionally, beneficiary designations can help to avoid probate. Probate is the legal process of distributing a person’s assets after they die. It can be a long and costly process, so avoiding probate is often desirable. By having beneficiary designations in place, your assets can be distributed directly to your beneficiaries without going through probate.
Setting up beneficiary designations
The process for setting up beneficiary designations will vary depending on the asset in question. For example, most retirement accounts will have a designated beneficiary form that you need to fill out. For life insurance policies, you’ll need to name your beneficiaries in the policy itself. Just make sure that you keep your beneficiary designations up to date, as they can change over time.
Ultimately, beneficiary designations are an important part of estate planning. Just remember to coordinate your will with your beneficiary designations to avoid any confusion or complications down the road.
