It is common practice at many banks and financial institutions to advise account holders to name beneficiaries on their accounts. At first glance, this seems like great advice. The assets will go to the designated beneficiaries quickly. There is no need to go through probate. The potential legal fees for estate administration are reduced, if not eliminated. It’s simple and it’s easy.
While often tempting, simple and easy solutions aren’t always correct because life is rarely simple or easy. The problem with designating a beneficiary is that beneficiary designations only answer one question: “Who gets my stuff?”
Life, however, asks other questions. For example, what happens if my child/spouse dies before me? What happens if the beneficiary becomes disabled? What happens if they are young, immature or incapable of sound money management? What happens if they develop a drinking, drug or gambling problem? What happens if I leave my child an inheritance and they go through a divorce or lawsuit? Will my life savings pay lawyers instead of leaving a legacy? How do I ensure my children gets stretch out tax benefits on my IRA?
All of these questions deal with issues that are just as important as the question of who receives an inheritance. These questions are all difficult, if not impossible, to answer with a simple beneficiary designation.
Effective estate plans don’t just name the beneficiaries, they also deal with these types of contingencies. Be wary of simple and easy solutions to life’s complicated problems. Complete an estate plan to ensure your family inherits your legacy not life’s tougher questions. To learn more, attend one of our upcoming workshops.