You probably had no idea about just how many things can go wrong by listing the wrong person or a person who should no longer have this authority on your beneficiary designation forms.
There are some best practices that you can implement in your estate planning instead that could minimize the possibility for unfortunate and uncomfortable situations for your loved ones.
Most people are familiar with the beneficiary designation form, given that they would have come into contact with it when opening a 401(k), an IRA, or completing a life insurance policy application. This form designates who is eligible to receive that asset if the account owner passes away.
Unfortunately, however, many people don’t understand the far-reaching consequences of a piece of paper such as a beneficiary designation form since it overrides other instructions in your estate plan including your will.
These forms can create turmoil, unintended bequests to former spouses and even confusion. Multiple account types are governed by beneficiary designations, such as a annuities, IRAs, life insurance, and 401(k)s. These contractual provisions override your will, meaning that if you have an outdated beneficiary designation form, the person listed on that form is still legally entitled to receive your assets even if you are no longer married to them.
It can be very problematic to fail to update your beneficiary designation forms. Set an annual reminder on your calendar to sit down with your estate planning attorney and discuss beneficiary designation forms and other tools.