When people create their estate plans, they tend to be very thorough. They draw up lists of all their assets, think carefully about their relationships and quantify their debts. They want to ensure that they address their financial obligations and leave inheritances that reflect the relationships they have with their beneficiaries.
When they conduct reviews and update their documents, they may rush through the process. Unfortunately, estate plans may fail to serve their intended purpose if people fail to keep them accurate and up-to-date. Not only do those thinking about their legacies need to review their wills, powers of attorney and other legal documents, but they may also need to reach out to their life insurance company in some cases.
Estate plans don’t control insurance policies
One of the most common estate planning misconceptions relates to life insurance. A surprising number of people assume that they can leave instructions in their will regarding the distribution of any life insurance proceeds paid out after their passing.
However, wills do not determine what happens with an insurance policy. Instead, the beneficiary designations that the policyholder files with the insurance company determine who can receive the buttons from the policy as a beneficiary. When family circumstances change, the policyholder likely needs to update the instructions provided to the insurance company.
Outdated beneficiary designations are a common estate planning issue. People make corrections to their wills without communicating with their insurance providers, or they assume that a drastic change in circumstances, like divorce, can influence what the insurance company does after they die.
Insurance companies do not automatically prevent a former spouse from receiving insurance proceeds. Family members and even deceased people are sometimes the main beneficiaries on record with the insurance company. Whenever family circumstances change, testators may need to consider reviewing not just their wills and other estate planning documents but also their insurance paperwork.
Keeping an estate plan up to date and accurate is as important for an individual’s legacy and the protection of their loved ones as investing the time and effort to establish the plan initially. Policyholders who regularly review their beneficiary designations can feel confident that the right people will receive financial support when they die.
