One of the most crucial aspects of estate planning is ensuring your beneficiary designations are up to date. Whether for retirement accounts like 401(k)s, IRAs, or life insurance policies, naming beneficiaries helps guarantee that your assets are distributed according to your wishes when you pass away. In Las Cruces, working with an estate planning lawyer to regularly review and update these designations can save your loved ones time, money, and stress.
Why Are Beneficiary Designations Important?
Designating a beneficiary allows assets from your financial accounts to bypass probate and be distributed directly to the people or entities you name. Without these designations, your assets will have to go through the lengthy probate process, potentially delaying distribution to your heirs and incurring additional legal fees.
Dunncreek Advisors explains that married couples may think that if one of them passes away, their assets will pass automatically to the surviving spouse, but this may not be the case. In addition, completing a beneficiary form makes your wishes clear, avoids the issue of assets passing to an ex-spouse, protects asset distributions if both spouses pass, and a trust-based estate plan will not function properly if the trust is not named as the beneficiary and owner of the assets after the owner has passed.
By completing and keeping your beneficiary forms up to date, you ensure a smoother and quicker transfer of assets, avoiding the complications that arise from probate. This is especially important for families in Las Cruces, where unexpected delays in accessing funds can create financial difficulties for loved ones.
Also read: What Is Probate?
What Happens If You Don’t Update Your Beneficiary Forms?
Failing to update beneficiary designations after major life events—such as marriage, divorce, the birth of a child, or a change in job—can lead to unintended consequences. For example, you may accidentally leave assets to an ex-spouse, as seen in the famous Kennedy v. Plan Administrator case. In this instance, a man’s ex-wife inherited his 401(k), despite the divorce, simply because he had not updated the beneficiary form.
To avoid such situations, it’s vital to regularly review your beneficiary forms with an estate planning lawyer in Las Cruces, particularly after major life changes.
How Can Incorrect Beneficiary Designations Cost Your Heirs?
Incorrect or outdated beneficiary designations can lead to significant tax consequences for your heirs. If your retirement account doesn’t have a valid beneficiary, the assets may pass to your estate. This triggers a five-year rule for distributions, meaning that your heirs will have to withdraw all the funds within five years, potentially facing hefty taxes.
If you want to protect your family from unnecessary taxes and ensure that your retirement accounts are distributed according to your wishes, it’s essential to keep your designations updated and correct.
Also read: Why You Need a Secondary Beneficiary
How Can You Protect Children and Heirs with Trusts?
If you have a large estate or want to ensure specific control over how your assets are distributed, you may consider naming a trust as the beneficiary of your accounts. Trusts can provide more protection and control, especially for minor children or heirs with special needs. By working with a Las Cruces estate planning lawyer, you can set up the right type of trust and make sure your beneficiary forms reflect your estate planning goals.
When Should You Check Your Beneficiary Designations?
It’s a good idea to review your beneficiary forms regularly, especially when any of the following life events occur:
- Marriage or divorce
- Birth or adoption of a child
- Death of a spouse or named beneficiary
- Change of job or retirement
- Major changes in financial or tax laws
A Las Cruces estate planning lawyer can help you keep these forms updated and ensure that your assets are distributed properly.
How to Update Your Beneficiary Designations
Updating your beneficiary forms is relatively simple. Contact the financial institution that manages your retirement accounts or life insurance policy and request a new beneficiary designation form. Complete the form with your updated information and submit it. Always keep a copy for your records, and ensure that your estate planning lawyer has a copy as well.
It’s important to designate both primary and contingent beneficiaries. If your primary beneficiary passes away before you, the contingent beneficiaries will inherit the assets. Failing to name a contingent beneficiary can complicate matters and may result in your assets going through probate.
Also read: Can Beneficiary Designations Be Challenged?
The Role of Contingent Beneficiaries
Contingent beneficiaries act as a backup in case the primary beneficiary is unable or unwilling to accept the inheritance. This could happen if the primary beneficiary passes away before you or chooses to disclaim the inheritance for tax or personal reasons. Naming contingent beneficiaries ensures that your estate plan remains flexible and prepared for unexpected changes.
Why You Should Work with a Las Cruces Estate Planning Lawyer
Estate planning is more than just creating a will; it’s about ensuring every aspect of your financial life is properly managed, including your beneficiary designations. Las Cruces Estate Planning Lawyer Michele Ungvarsky will help you navigate the complexities of these forms and ensure they align with your overall estate plan. E-Law can also help you review your plan regularly to reflect life changes and avoid costly mistakes.
Take Action Today: Request a Discovery Call
Don’t leave your loved ones at risk. Contact E-Law in Las Cruces to ensure your beneficiary designations are up to date and your estate plan is airtight. Request a discovery call today to protect your family’s future and give yourself peace of mind.
