Estate Planning Mistakes People Make when Designating a Beneficiary
If you are even slightly familiar with estate planning in the Bronx, you must have come across the term “probate”. This particular term is a reference to a legal procedure that is neither good nor bad. It may be helpful in some instances, but the general sentiment around it is of avoidance.
Consider it like the watermelon candy every grandma has in her purse. They’ll always have it when you ask for something sweet. In fact, you’ll also find it among their Halloween handouts. Even with its supposed omnipresence, nobody actually eats it. Again, it’s better avoided.
Similarly, estate planning in the Bronx is better off without the possibility of probate. The process may not be bad, but it is public, long, and costs money.
One can achieve that by properly assigning titles and dedicating beneficiaries in your financial accounts. The beneficiary is basically the person or another entity (charity, non-profit, etc.) that will receive a certain part of your estate in case you pass away.
When you name a beneficiary on a bank account or policy, it passes on to the named individual/entity, probate-free.
This is undoubtedly a very favorable aspect of estate planning in the Bronx. However, beneficiary designation mistakes must be avoided to ensure unintended consequences are prevented from emerging.
Here are some of the most common beneficiary designation mistakes to avoid:
Mistake 1: Neglecting naming beneficiaries in the first place
Yes, this one is pretty obvious but still one of the most common ones. Failing to name beneficiaries along with additional probate-avoiding measures, you are virtually ensuring the complete opposite.
Your loved ones will have to go through a costly and lengthy process. It might be inherently bad, but probate is certainly avoidable.
If you think you already named beneficiaries, check again.
Why? – Because you don’t want to avoid the next two mistakes.
Mistakes 2: Not naming a contingent beneficiary
Any best estate planning lawyer in the Bronx will remind you to name a contingent beneficiary. This is a step taken to ensure your estate still goes to a person or organization you intended in case the primary recipient predeceases or denies to inherit.
Without a contingent beneficiary, the estate will undergo probate or intestate administration.
Mistake 3: Not updating beneficiaries
Estate planning in the Bronx requires frequent revisits. Life is ever-changing. Just over the course of a few months, relationships change. People get divorced or married, partners separate, loved ones have a falling out, children and grandchildren are born. These and other life instances can change your intentions regarding estate distribution.
You don’t want an ex-spouse receiving the house or a grandchild being left out of the will.
Get in touch with your estate planning lawyer in the Bronx to ensure you are aware of what life milestones may warrant updating the beneficiaries.
Mistake 4: Naming beneficiaries on joint bank accounts
Joint accounts are great for partners to combine finances. However, there are a few challenges with it.
For instance, let’s consider two instances:
- You list one adult child as a joint account holder but name both of kids as equal POD beneficiaries. Upon your death, it is the account holder who will receive the funds first. In the end, it will seem like you’re unintentionally cutting the other one out.
- Your sibling is the joint account holder, but you have named your only child as the sole POD beneficiary. However, your child will only receive the inheritance when all account holders die.Also, in both instances, the second account holder can withdraw the funds or change the beneficiary to whomever they want. With that, your intentions will be long forgotten.
Mistake 5: Designating a beneficiary with “special needs”
When estate planning in the Bronx is considered, someone with “special needs” is anyone who receives government aid for a disability. The aid is essential for continued care.This here is not saying that you should ignore loved ones with special needs. However, there is some contingency involved. What this means is that there is a high likelihood of a person losing government aid if they receive a sizeable inheritance.
Unfair? – Yes, it is. But this has its reason.
Estate planning in the Bronx offers a solution in the form of “special needs trusts” or supplemental needs trusts. Ask your estate planning lawyer for more information.
Mistake 6: Choosing a minor child as a beneficiary
Depending on the state you live in, children can access their funds at the age of 18 or 21 after their parent’s death.
Naming a minor child means leaving hundreds of thousands (or millions for the more fortunate ones) to a barely legal adult. Until they reach that age, the court designates a custodian for the management of proceedings.
You can avoid this by considering setting up a trust or taking another route with estate planning in the Bronx. This will help with better regulation of your child’s inheritance and security.
Mistake 7: Naming your estate as the beneficiary for your IRA/life insurance
Naming your estate as a beneficiary means your distributions will go through more limiting probate. Life insurance policies, IRA (Individual Retirement Accounts), etc. go through the probate process after your death.
This leaves both spousal and non-spousal beneficiaries to have two distribution options. They can distribute a lump sum amount, fully taxable at the time of distribution. Or they can divide it within 5 years of your death, with each payment being fully taxable at the time of distribution.
Both ways are very limiting. However, rolling over the retirement – into their own IRA for spouses and setting up an inherited IRA for non-spouses – is more advantageous.
This can be tricky to understand. Consult a financial advisor or an estate planning lawyer in the Bronx for further guidance.
In the end, you want what’s best for your family and loved ones and ensure they are taken care of even when you’ve crossed the transience barrier and passed on. Being vigilant about estate planning and avoiding beneficiary designation mistakes is an important step in doing so.