Common Mistakes with Beneficiary Designations

We harp on our clients on a regular basis to make sure that beneficiary designations for life insurance and retirement plans are updated and coordinated with their estate plans.  This is important for many reasons, the primary of which is that it helps to ensure that all assets will pass to a client’s family at the time and in the manner that they wish. 

For example, one of our clients from the Westchase area provided for her children in a Revocable Trust so that they would receive an inheritance over time – staged gifts at ages 30 and 40.  Her life insurance beneficiary designation names her minor children as direct beneficiaries.  This means that when she dies, some of her assets will pass through her estate plan that we helped her with and her life insurance will pass to a guardianship for her children who will fully control those funds at age 18.  Quite a difference!  This can be corrected simply by updating her beneficiary designation to name her Revocable Trust as beneficiary of her life insurance policy.

This story is not uncommon and prompts us to think of and warn against some of the common beneficiary designation mistakes that you should avoid:

  1. Not coordinating your beneficiary designations with your Will and Revocable Trust.  You just need to fill out a form with the proper beneficiary designation and mail it to your insurance company for recording.
  2. Naming your estate as your beneficiary.  There are cases were this is appropriate, but more times than not, this can be problematic.  This results in your life insurance or retirement asset being subjected to probate and possible creditor claims.
  3. Not naming successor beneficiaries.  You might like the idea of naming your children as primary beneficiaries, but what happens if one of them predeceases you?  Depending on your insurance or retirement plan contract, your surviving children may receive that asset to the exclusion of a deceased child’s children, or it may pass to your estate (which, as noted above, is not ideal). 
  4. Naming a trust as beneficiary of retirement assets over naming your spouse.  Generally, most estate planning practitioners advise their clients to name their spouses as primary beneficiary of retirement assets.  This permits a surviving spouse to roll-over the retirement asset and defer taking distributions.  Of course, there are times when naming someone or something as primary beneficiary is appropriate.  For example, if you have a disabled child who is receiving government benefits, having a special needs trust as beneficiary will allow your assets to be available for your children without frustrating those benefits.

If you have committed one or more of these “mistakes” – give us a call at 813-254-0044 to review your planning.  It might be that your efforts should be applauded for thinking out-of-the-box or tweaked a little to make sure that your wishes prevail at the time of your death.

Posted in

Joshua Keleske

Leave a Comment