Some Beneficiary Designation Mistakes to Avoid

Early in my legal career a person’s Last Will and Testament dictated where a person’s estate would go to and who was in charge.  Today, a Last Will and Testament is still important for many issues, but the common use and practice of beneficiary designations for almost any type of property interest in Indiana can control who receives much of their estate, and not their Last Will and Testament.

In Indiana, you can name a beneficiary of any type of asset and property such as bank accounts, CDs, retirement accounts, real estate, motor vehicles, investment accounts, annuities, and life insurance.

Some common mistakes:

  1.  Not naming a beneficiary.  If a beneficiary is not named many times the policies and the boilerplate form language with the company would control who receives the balance upon death.  Usually if no beneficiary is named, then would be controlled by the decedent’s Last Will and Testament or by Indiana law.
  2. Using vague language or misspelled names.  For example, a person may have beneficiaries listed as their “children”.  Does this include “stepchildren” as well?  Many common names or several generations of the same name such as Steve Smith, Smith III or a common misspelling of a name can also result in confusion on who the correct beneficiary should be upon death.
  3. Not updating or verifying beneficiaries.    Life constantly changes.  For example, marriage, divorce, birth, death, or change of the situation of a beneficiary such as a disability or a creditor or tax situation.  Also, many times financial companies go through mergers, or update their computer systems, or just lose the beneficiary documentation.  Many times, the beneficiary form was improperly completed when first filled out.  This is the reason it is important to revisit, review, and discuss with your financial or legal counsel your current beneficiary designations.
  4. Not setting up contingent beneficiary designations correctly.   When doing estate planning, I always tell clients that the premature death of younger/healthier beneficiaries can happen, and who they will want to receive their share if this happens.  To the surviving beneficiaries in that group?  Or down to their descendants?

These are some of the mistakes that can easily be made on beneficiary designations.  If set up correctly, beneficiary designations can avoid probate and make the process easier upon your passing.  If incorrectly completed or not updated, it could result in possible delay, litigation, or an unintended person receiving an inheritance.