In our last post, we looked at several crucial legal documents for single people, including wills, powers of attorney, living wills, and HIPPA privacy waivers. Truth be told, just about everyone–married, single, or separated–can benefit from having these powerful documents in place. However, there’s another document that’s often overlooked that needs to be thoughtfully, regularly updated: the beneficiary designation form on your existing life insurance policies, retirement, and other POD (payable on death) securities and accounts.
Many of us haven’t laid eyes on these forms in years–not since we enrolled in our 401(k), opened our bank account, or took out that life insurance policy. And many of us wrongly assume that when we finally update our will, it covers those assets. But that’s a critical mistake that can cost your intended beneficiaries and upend your estate plan.
Because assets like life insurance proceeds, retirement accounts, annuities, and other POD accounts pass outside of your will, bypassing the probate process. At your death, these “non-probate assets” are distributed to the people you identify on your beneficiary designation form, not by the terms of your will.
Which means that if you update your will or experience a major life change, like marriage or having kids, without changing your beneficiary on these forms, the wrong person can end up with your money. Sometimes state or federal law tries to right these wrongs, with laws which protect a spouses’s right to receive the proceeds of qualified retirement or IRA accounts, or laws that terminate a former spouse’s right to receive assets after a divorce.
But most of the time, it’s up to you to get it right. And while filling out the forms can only take a few minutes, a good amount of thought needs to go into it. There can be negative legal consequences to naming certain beneficiaries, such as minor children. And though you can get non- probate assets into your will (typically, by designating your estate as your beneficiary) there are many times when that’s not the best first choice, such as when a spouse will need ready access to cash. So speak with an attorney about your situation before you update your will and beneficiary designation forms, so you can be sure you’ve connected all the dots.