Let’s face it, no one wants to think about the day they are going to die. Taken a step further, no one wants to deal with the legal implications of dying without a will and/or a beneficiary. It’s as if by tackling these issues while still very much alive, you are signing your own death sentence.
But if you die without your legal house in order, you can cause your surviving family members both financial and emotional pain. Says a probate attorney in Los Angeles from the San Fernando Valley Bar Association, sometimes people die unexpectedly and, in turn, they leave nothing to their rightful beneficiaries. In that case, a person’s legal and financial affairs must be settled after death.
But a probate attorney will help you file a probate petition, settle the legal and financial affairs of your deceased family member, and even assist the beneficiary to your estate in settling family disputes which are all too common.
What’s also all too common, is not properly naming a main beneficiary while you’re still alive. According to a recent report, beneficiary designation is the legal act of naming someone who will directly receive benefits when you die. The benefits can include your 401(k), your IRAs, your cryptocurrency holdings, your life insurance policy, your fiat retirement savings, property, and more.
The problem is that beneficiary designation can get a little messy when there’s more than one beneficiary involved—beneficiaries being children of the deceased, and/or wives/husbands. Potential problems can be dodged by avoiding some of these most common beneficiary mistakes.
Minors Named as Beneficiaries
The law states that if you name a child as a beneficiary, he or she cannot receive the benefits they are entitled to upon your death until they turn 18 years of age. In this case, it’s the responsibility of the court to appoint a trustee to handle the benefits (which usually include cash) until the child’s 18th birthday.
But here’s the rub: until that time, the guardian can use the money however he wants. This means that by the time the legal beneficiary turns 18, there might not be a whole lot of their rightful inheritance left. But this can be avoided if you, as the benefactor, sets up a trust fund for the child.
You can choose a trustee who will establish guidelines and legal limitations that makes certain all funds are secure until the beneficiary comes of age at 18.
Not Coordinating Your Will and Your Beneficiary Designation
It’s an all too common mistake for people to believe that their will is the final word on who gets their benefits when they die. They simply can’t be bothered with making a specific beneficiary designation thinking that the legal will is more than enough.
But the fact of the matter is that “the opposite is true.” A beneficiary designation automatically overrides anything documented in your will. Full stop. Therefore, if you feel the need to change your will for any reason at all, you also need to change the beneficiary designation also.
Failure to Name Alternative Successor Beneficiaries
When you name beneficiaries to your estate, it’s important to keep in mind that they might not live long enough to receive their inheritance. You might logically decide, for instance, to sign your oldest son or daughter as the beneficiary and leave it at that. But, while it’s unpleasant to contemplate, your child could die in an accident.
It’s because of this that you need to legally appoint “successor beneficiaries.” These are beneficiaries who will receive your benefits if your main beneficiary dies a premature death. This should be done even if you do not yet have grandchildren or any other potential heirs to your fortune.
In a word, the future is uncertain, so it will pay to assign your estate to both an original beneficiary and an alternative successor beneficiary.
Assigning Your Estate as Your Beneficiary
The only reason you would assign your estate as your beneficiary is if you have no heirs to your fortune. But this is one of those common mistakes lots of people makes since it can cause quite a few legal problems.
For example, naming your estate as the beneficiary means all your assets must go through probate upon your death. What this translates into, is that the courts will retain the right to distribute your assets as they see fit. They might utilize some of your assets to repay unpaid debts or even your kid’s debts, thus reducing the overall value of your estate.
Also, by naming your estate as the main beneficiary, you automatically increase the heirs’ income taxes while eliminating many tax benefits they might have otherwise enjoyed.
Death is inevitable. Make sure your financial house is in perfect order before it comes knocking on your door.