When I sat down with my own estate planning attorney to do an interview for my newsletter, Morningstar PracticalFinance, I kicked off our discussion by asking her what she thought the most common estate planning pitfall was.
Without skipping a beat, she said, "Misunderstanding beneficiary designations."
The decision about how to designate beneficiaries for your company retirement plan, life insurance policies, and other assets might seem like a no-brainer. But naming beneficiaries is a more nuanced decision-making process than you might think, and it's one that may have significant repercussions for your loved ones. Your beneficiary designations may also change as your life does—for example, if you get married or have children.
You can typically name beneficiaries for a broad range of assets, including retirement plans, annuities, and life insurance policies. And you can name a broad range of beneficiaries, including individuals, charities, and trusts. (Children under the age of majority—age 18 or 21, depending on the state in which you live—cannot be named as beneficiaries of life insurance policies, retirement plans, or annuities, however.)
When you name a beneficiary, those assets can pass directly to whomever you designate; they won't have to go through probate, which can be a lengthy and costly process. In addition, bear in mind that your beneficiary designations will override bequests you've made in your will. For example, even though ...