Many California men and women know and understand the importance of keeping designations on beneficiary documents up to date. These documents allow a person to designate who gets certain property or assets. However, there are many mistakes that can be made that limit how effective the execution of such documents can be.
One major mistake that many make is naming children under the age of 18 as beneficiaries. This is because minors cannot inherit the full amount that a person might leave to them. To avoid this, parents might decide to set up a trust that controls the distribution of assets to the minor over time. Likewise, those who fail to name beneficiaries on their IRA are subjecting their heirs, with exception to spouses, to significant taxes when they withdraw the money. They may also pay be required to pay taxes on any subsequent earnings that are made with the inheritance money.
Other big mistakes that people make include believing that their will covers all of the details of estate planning and failing to update the forms when circumstances change. For example, beneficiary designations are always considered over the terms of a will. This means that even though a more recently updated will bequeaths an asset to an heir, an old beneficiary designation that gives that asset to a different person is upheld in court.
An attorney can potentially help their client determine what they want their estate plans to be. In addition to drafting initial documents that set up trusts and a will, an attorney might also be able to review other estate planning documents for any possible sources of dispute or confusion upon the death of the benefactor.
Source: The Motley Fool, “Top 5 Beneficiary-Form Boo-Boos”, Dayana Yochim, November 24, 2014