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James A. Jones, Attorney At Law
Plan Today, Peace of Mind Tomorrow

Common errors in beneficiary designations

Beneficiary designations can be an important part of an estate plan for people in Washington, but they are often mishandled. Retirement accounts, annuities and life insurance are among the assets that are passed using a beneficiary designation.

One common error is not naming a beneficiary at all. What happens to the asset at that point depends on the type of asset and the rules of the financial organization. The asset might go directly to the probate estate, which could cause delays and incur tax. Some people who do complete beneficiary forms fail to do so clearly. For example, if two family members have the same name, such as a senior and a junior, the form needs to clarify who the asset should pass to. This type of error could also lead to a delay or even litigation.

Another common error is allowing the asset to pass directly to a beneficiary when this is not the best arrangement. An irresponsible heir might simply spend all the money quickly. In addition, receiving an inheritance could make a person with special needs no longer eligible for government assistance. Using a trust is one way to solve these problems.

Many of the above issues could be avoided by reviewing beneficiary designations with a professional. These forms might also need to be revised periodically as families and circumstances change.

Beneficiary designations should be viewed as one component of the overall estate plan. There may be other assets that are passed using a will or via a trust. As with beneficiary designations, it's important to be clear about who these assets are intended for and to review them regularly. An attorney could help an estate owner with this process.

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