A typical benefit at many jobs is a life insurance policy. On one of the first days on the job you might have completed a related beneficiary designation. Open a bank account, an investment account or buy a private life insurance policy and you have also completed these fields whether you remember who you listed or not.
Beneficiary designations often go neglected. What many people do not realize is that these payable-on-death accounts pass outside of a will and probate. Because of this you need to review them for accuracy during the estate planning process.
Washington State law related to marriage
In the late 1990s legislators enacted a statute to address divorce. For instance, what could happen was that a couple divorced, but never updated a life insurance policy purchased during the marriage. The now ex-spouse remained the listed beneficiary. In that case, an ex- could have inherited instead of children from a prior relationship.
The state law revoked this type of beneficiary designation unless there was a statement the couple intended to keep the designation in place. For instance, a guarantee on child support might be backed with a life insurance policy.
An estate plan shouldn’t be forgotten about
This illustrates how the law can change, but the above stated statute is specific to divorce. There are many other situations, however, that require you take an active role in changing the designations. Beneficiary designations are important tools for transferring accounts, but these must be reviewed during the initial estate planning process.
For instance, you may have listed a parent while single. Now, you have a spouse and young children. The existing beneficiary designation may not be in your family’s best interest anymore.
After the initial estate planning process, review beneficiary designations after any major life event: marriage, divorce, remarriage or birth of a child. Even if none of these occur, it is a good rule of thumb to calendar out regular reviews every five or 10 years.
Make strategic decisions that align with your overall plan
It is also important to consider your entire estate plan goal when making each beneficiary selection. Talking to an attorney can help ensure that your goals and decisions align.
It may be easy to forget the numerous accounts and documents that require beneficiary designations. Taking the first step and remembering to review these can help protect the plans you have for the future.