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2 oversights people commonly make when updating estate plans

On Behalf of | Apr 14, 2023 | Estate Planning

There are certain times in life when it becomes necessary to update estate planning documents. If a beneficiary dies before a testator, removing them from the estate plan will often be necessary to keep the documents valid and up-to-date. If someone divorces, they will typically what to make sure their spouse doesn’t inherit any of their property or have authority over their personal needs in the event of an emergency.

Most people who update their estate plans understand that they need to look over each document that they drafted with a lawyer regularly. As a good rule of thumb, estate doc review should happen annually, just like paying income taxes. Correcting beneficiary lists, adding new property and even integrating new documents, like powers of attorney, can all be smart updates to an estate plan, given the unique nature of someone’s circumstances.

However, there are two important estate planning matters that people often fail to update when correcting other documents.

1. Life insurance beneficiaries

Even if people talk about their life insurance proceeds in their will or trust documents, their estate plan is not what determines who receives the payout from the policy when they die. The beneficiary designations filed with the insurance company are what ultimately determine who will receive the money from the policy.

If someone makes a statement about changing the beneficiary in their will or trust but does not file updated paperwork with the insurance company, the wrong party may receive the funds from their insurance policy. People often fail to think about their life insurance, even though it may be one of their most valuable assets.

2. Bank account designations

Someone with retirement, checking, savings or investment accounts sometimes file special paperwork to have their assets transferred to a specific person after their death. Such designations allow a beneficiary to assume control over an account instead of having it passed through probate as part of an estate.

Such designations do provide someone with clear rights, but the original owner of the account can update or remove them at any time. If someone wants to change or eliminate the designation attached to an account, they will typically need to reach out to the professionals or financial institutions managing those resources.

Oversights in the estate planning process can lead to unintended outcomes during probate proceedings and estate administration. Properly updating estate planning documents and external paperwork is an important consideration for those who have a specific legacy in mind.