One of the most important and useful gifts you can give to your loved ones is to have a comprehensive estate plan in place that ensures that are protected and financially secure if something happens to you. If you have that plan in place, do not forget to update that plan from time to time to make sure it reflects your current wishes. Sometimes, you may need to make an immediate adjustment to your estate plan. With that in mind, the Port St. Lucie attorneys at Kulas Crawford & Smith explain when you need to update the beneficiaries in your estate plan.
Where Are Beneficiaries Found in an Estate Plan?
Your loved ones were likely the primary motivating force behind the creation of your original estate plan. If so, much of your estate plan is probably devoted to ensuring that your assets are passed down to them or that they are financially secure if you become incapacitated or pass away. Within your estate plan, these people are your beneficiaries and may be found throughout your plan in places such as:
- Last Will and Testament
- Trust agreement
- 401(k) or IRA
- Life insurance policy
- Financial accounts
- Investment accounts
What Is a Beneficiary?
While the terms “beneficiary” and “heir” are often used interchangeably, they are not the same. An heir is someone who inherits from your estate according to the relevant state intestate succession laws. Heirs typically include your spouse and blood relatives, such as your children, parents, and siblings. A beneficiary is someone who you designate to inherit from your estate and may include relatives, friends, charities, or even your family pet.
A beneficiary can also be a contingent or future beneficiary. A contingent beneficiary can be thought of as the “next in line” to receive assets from your estate plan and will only inherit if the primary beneficiary predeceases you, rejects the inheritance, or cannot be found after a diligent search. Future beneficiaries are found in a trust agreement and are entitled to benefit from the trust assets after a specific period of time during which current beneficiaries are entitled to distributions from the trust agreement.
When to Update Beneficiaries
A routine review of your entire estate plan, including your beneficiary designations, should occur every three to five years during your working years. In between scheduled reviews, however, there are events that should prompt you to consider an update to your beneficiary designations, such as:
- Marriage. If you get married, you will undoubtedly want to update beneficiaries to include your spouse; however, you may also need to update your beneficiaries if a child or another existing beneficiary marries. Your relationship with the new spouse and/or your overall concerns about how the marriage could impact an inheritance you are leaving to your child may cause you to reconsider your existing beneficiaries.
- Divorce. To prevent your ex-spouse from inheriting your entire estate you need to update your beneficiaries after a divorce. Do not forget to update beneficiaries on life insurance policies and retirement plans as well as the beneficiaries within your Will or a trust agreement.
- Death of a beneficiary. While your existing plan should account for the possibility that a beneficiary will predecease you by including successor or contingent beneficiaries and/or instructions for handling the assets if the beneficiary cannot accept the gift, it is best to update your designations to reflect the successor as the primary beneficiary upon being informed of a beneficiary’s passing.
- Birth of a beneficiary. Although your existing plan should also address future beneficiaries who have yet to be born (such as grandchildren) with generic, inclusive language like “descendants,” it is best to use actual names to reduce confusion and potential legal issues.
- Beneficiaries reaching the age of majority. A minor child cannot directly inherit from your estate by law. As such, it is important to add them as beneficiaries when they reach the age of majority.
- New accounts, policies, or documents. A surprising number of individuals forget to designate beneficiaries on various new accounts, such as a new retirement account, which can lead to assets being held up in probate rather than going directly to loved ones upon your passing.
Do You Need to Update Your Beneficiaries?
To learn more, please join us for an upcoming FREE seminar. If you have additional questions or concerns about when to update the beneficiaries in your estate plan, please contact an experienced Port St. Lucie estate planning attorney at Kulas Crawford & Smith by calling (772) 398-0720 to schedule a consultation.
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