The importance of beneficiary management

On Behalf of | Nov 27, 2020 | Estate Planning |

For a document that could determine where thousands of dollars go, the beneficiary form does not get the attention it deserves. A few unusual aspects of this document demand that a person fills out the form correctly.

The document remains in force whether or not it reflects a person’s wishes or not.

Common errors

According to a USGS information page, a person can change a beneficiary form at any time. That is, no open season exists or qualifying event to make a change or to update the document. When filling out the form, though, the following mistakes could invalidate the form:

  • Failure to sign
  • Failure to record required witnesses
  • Presence of erasures, cross-outs or alterations
  • Failure to complete in ink
  • Failure to account for 100% of account value

Significant life events such as marriage, divorce or the birth of a child often result in the need to review and possibly change a beneficiary form. In many cases, a current will does not override the primacy of the beneficiary designation.

Best practices

The American Society of Pension Professionals and Actuaries provides some details for best practices when it comes to beneficiary documents. One suggestion is that reviews take place on a regular basis. Failure to update beneficiary designations for a retirement plan or life insurance policy results in litigation. Another suggestion is that the document contain as much information as possible, such as Social Security numbers, birthdates and addresses. It also makes sense that a redesignation contains a provision that revokes all prior designations.

It is important that all beneficiary documents incorporate state laws into the document. This could play a role in unusual circumstances such as the beneficiary causing the death of the deceased or in cases of simultaneous deaths.

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