When Should I Update Beneficiary Designations in My Estate Plan?

Planning for the future is an essential part of life, and this includes creating an estate plan. Your estate plan will determine how different types of assets you own will be allocated among your heirs. This can help you make sure your family members and other loved ones will have the resources they need in the future. However, it is crucial to regularly review and update your estate plan, especially when it comes to beneficiary designations.

The Importance of Beneficiary Designations

In an estate plan, beneficiary designations specify who will receive certain assets upon your death. These designations can apply to various accounts or policies, such as retirement plans (401(k)s, IRAs), life insurance policies, bank accounts with payable-on-death provisions, and brokerage accounts with transfer-on-death provisions.

Updating beneficiary designations is vital, because these designations supersede any instructions provided in your will. Although you may have crafted a comprehensive estate plan years ago, changes in the circumstances of you or your family members might necessitate revisions to ensure that the intended beneficiaries receive assets correctly.

Circumstances That Require Updating Beneficiary Designations

Several significant events should prompt you to revisit and revise your beneficiary designations, including:

1. Purchase or Sale of Assets: When acquiring new assets or selling existing ones, such as real estate properties or business interests, it is critical to update the corresponding beneficiary information on related accounts.
2. Marriage or Divorce: Getting married or divorced impacts how you may want to distribute assets to your spouse, children from previous relationships, or other family members.
3. Births/Adoptions: The arrival of new family members, whether through childbirth or adoption, may necessitate updating beneficiary designations to ensure they are included in your estate plan.
4. Death of a Beneficiary: If a designated beneficiary passes away before you do, it is imperative to update the designation to include an alternate beneficiary.
5. Changes in Relationships: Estrangement from family members or severed ties with close friends may require adjustments to your beneficiary designations.
6. Moving to Another State: Laws governing estate planning and estate taxes can vary between states. It is beneficial to review and revise your beneficiary designations accordingly when moving to a new state.

The Consequences of Failing to Update Beneficiary Designations

If you do not update beneficiary designations based on major life changes or other concerns, unintended individuals could be awarded assets at the expense of those who were meant to receive them. Outdated designations can lead to lengthy legal battles among potential beneficiaries, or assets could be distributed to certain people against your actual wishes as outlined elsewhere in your estate planning documents.

To prevent these unfortunate scenarios, it is crucial to proactively review and adjust your beneficiary designations whenever significant life events occur. By keeping your estate plan up-to-date, you can ensure that the people closest to you will benefit directly from your assets.

Contact Our Naperville Estate Planning Attorney

If you are uncertain about when you may need to update beneficiary designations or other aspects of your estate plan, the skilled DuPage County estate planning lawyer at the Gierach Law Firm can answer your questions. We will assist you in determining what adjustments need to be made and putting these changes in place, and we will help you address any other issues that may affect your estate. To learn how we can help you plan for the future effectively, contact us at 630-228-9413 and set up a consultation.

Sources:

https://getcarefull.com/articles/why-you-need-to-update-your-beneficiaries

https://www.wellsfargoadvisors.com/planning/goals/estate-planning/beneficiary-designation-tips.htm