If you have a life insurance policy or retirement account, you’ll need to include them in the estate planning process. This requires filling in the beneficiary designations, which allow you to name heirs to receive the proceeds of these accounts. The Balance explains a few key points regarding beneficiary designations so you can rest assured your final wishes are met.
Beneficiary designations take precedence over wills and trusts and can also help you avoid probate. Even if you include language about these assets in other estate planning documents you must fill out the accompanying form on respective accounts. Additionally, you should revisit all estate planning documents on a regular basis to ensure they still meet your needs. If a will and beneficiary designations differ, the court will use the information listed on the latter form.
Also, you can choose backup or contingent beneficiaries. In the event your first pick dies before you do, you can rest assured that the backup will receive the proceeds of the account. You can also name a few different beneficiaries, just make sure you fill in the proper percentage of your assets you want them to receive. If you have questions, it’s best to work with an estate planning attorney to ensure documents are correct.
Lastly, when leaving money to heirs you want to keep tax issues in mind. If you’re leaving assets to a spouse taxes are usually not levied. However, other heirs will be subject to estate tax, which you should keep in mind when dividing up your estate. Heirs will also be subject to rules regarding how they receive money. As an example, those in receipt of proceeds from a 401(k) account will be required to take the money in one lump sum and pay income tax on the full amount.