Most California residents understand the importance of estate planning to protect their assets and loved ones. If you’ve taken steps to start it, you probably have beneficiaries named. Paying close attention to your beneficiary designations is crucial.
Beneficiary designations and your financial accounts
Part of your estate planning involves naming beneficiaries on all your financial accounts. This might include your bank accounts, life insurance policy and retirement plans. Immediately upon opening these accounts, you are urged to name a beneficiary to inherit the money from them in the event that you pass away. However, many people make the mistake of naming a single beneficiary when they should name at least two. The second choice, your contingent beneficiary, will receive the funds from your financial accounts if your primary beneficiary dies before you.
When to update your beneficiaries
Certain situations call for updating your beneficiary designations. You should take this step any time something considered a major life change occurs such as first-time marriage, divorce or remarriage. If you’re newly married, you’ll want to add your spouse’s name to your estate planning documents. However, if you divorce, the opposite is true. In the event of a second marriage, you should remove your former spouse’s name and add your new spouse. Forgetting to do this can spell disaster; you don’t want your former spouse to handle your financial and healthcare matters if you become incapacitated or inherit assets you wish to leave to your current spouse or children.
If you have a new child by birth or adoption, it warrants updating your beneficiaries. Although minors cannot inherit assets, you can still name them in your estate planning documents and create a trust to hold assets and property for them that they can receive after reaching the age of majority.
