Most lists of “common estate planning mistakes” include the frequent error of failure to properly update beneficiary designations. Yet, even that mistake is deceiving, because updating is just one thing to consider with these designations. Even if the names are evaluated on a consistent basis, it is still important to ensure that the person named as the beneficiary fits in with other aspects of an overall estate plan.
Fox Business recently published a story listing ten different ways that life insurance beneficiary designation decisions are made in error. The story is worth browsing to get a feel for some common issues.
For example, it is critical to name someone who can actually receive the funds. Parents may name their minor child as the beneficiary, but the insurance company will not dispense funds directly to a child. Without a trust or similar arrangements, then this designation will cause problems. A guardian must be appointed, leading to costly and timely court proceedings being necessary.