Ensuring the well-being and financial security of your loved ones in the face of unexpected events, such as your death or incapacity, is a fundamental goal of a comprehensive estate plan. Once you’ve established your plan, it’s vital to periodically reassess and modify it to align with your evolving needs, objectives, and desires. Although regular reviews of all aspects of your estate plan are advisable, special attention should be given to updating beneficiaries. With that in mind, the attorneys at Eghrari Law Firm offer insights into recognizing when updates to your estate plan beneficiaries are necessary.
Distinguishing Between Beneficiaries and Heirs
The terms “beneficiary” and “heir” are often used interchangeably, but they carry distinct meanings. A beneficiary is a person designated by you to inherit from your estate, encompassing relatives, friends, charities, and even your family pet. On the other hand, an heir is someone entitled to inherit from your estate according to state intestate succession laws, typically including your spouse and blood relatives such as children, parents, and siblings. Although an heir may also be a designated beneficiary in an estate plan, it’s not a universal correlation. For instance, a family pet might be a designated beneficiary, but it is not a legal heir. Conversely, your daughter is a legal heir, but if disinherited in your estate plan, she does not qualify as a beneficiary. Common locations for beneficiaries in your estate plan include:
- Last Will and Testament
- Trust agreement
- Life insurance policy
- Retirement accounts
- Financial accounts labeled as “payable on death” accounts
Determining the Need for Beneficiary Updates
Regularly reviewing your entire estate plan is prudent, with many estate planning attorneys recommending a reassessment approximately every five years during your working years. During routine reviews, verifying and revising beneficiary designations is essential. Circumstances may arise, however, between routine reviews that necessitate an immediate update to your beneficiaries, such as:
- Addition of new beneficiaries: If you recently married, became a parent, welcomed another child, became a grandparent, or wish to financially support a charity, an immediate addition of a beneficiary may be warranted. While your existing estate plan may account for future beneficiaries in general terms, specifying beneficiaries by name is advisable.
- Removal of beneficiaries: Life changes, like divorce, may prompt the immediate removal of a beneficiary from your estate plan. After a divorce, it’s crucial to update beneficiaries in your Will, trust agreement, financial accounts, retirement accounts, and life insurance policies. Note that legal constraints from a divorce decree may affect changing beneficiary designations on life insurance policies.
- Minor beneficiaries reaching the age of majority: Minors cannot directly inherit from your estate by law. Therefore, it’s important not to name a minor as a direct beneficiary in your estate plan. Once a minor beneficiary reaches the age of majority, however, immediate changes to beneficiary designations in life insurance policies, financial accounts, and other estate plan elements may be warranted.
- New accounts, policies, or documents: Acquiring new accounts, such as retirement accounts, requires adding beneficiaries. Life changes, such as starting a new job, often accompany new accounts. Forgetting to designate a beneficiary can result in assets being held up in probate instead of swiftly passing to loved ones after your passing.
Is It Time to Review and Update the Beneficiaries in Your Estate Plan??
For more information, please join us for a FREE estate planning seminar. If you need to review and potentially update the beneficiaries in your estate plan, contact the Long Island estate planning attorneys at Eghrari Law Firm by calling us at 631-265-0599 to schedule your appointment.
5 Surprising Ways an Estate Planning Attorney Can Help You
See Larger Map
Get Directions