It’s expected that baby boomer parents will be transferring approximately $30 trillion to the next generation over the next 40 years. Many of these assets are classified as non-probate and will not be transferred under traditional estate plan in your last will. As a result, mistakes with beneficiary designation could compromise the integrity of your estate plan.
The assets inside your estate are classified as non-probate or probate assets. Non-probate assets include any brokerage account held in joint tenancy, annuities with residual value, life insurance, death benefits, and retirement accounts. On your non-probate accounts, you are eligible to name both primary and contingent beneficiaries.
When you pass away, the nonprobate asset is transferred to the primary beneficiary who becomes the new owner of that. In the event that the primary beneficiary passes away before you, the asset is instead transferred to a contingent beneficiary. If you have not listed a contingent beneficiary and the primary beneficiary has passed away before you or you have not listed a beneficiary at all, then this will go into your general estate for distribution. Some of the biggest mistakes that people make in this process include:
- Naming the estate as a beneficiary or only naming a primary beneficiary.
- Forgetting to update beneficiary designations.
- Making a dependent accidently ineligible for government benefits, if he or she is disabled.
- Not comparing the beneficiary designations to your estate planning goals or documents.
Consulting with a knowledgeable estate planning lawyer well in advance can help you determine that whether or not your beneficiary designations are up to date and what should be changed in order to accommodate for your unique considerations.
