Creating an estate plan is a responsibility that many people delay. After someone creates an estate plan, they may avoid revisiting it as frequently as they should. Updates and corrections to estate planning documents are crucial to the protection of family members and the establishment of someone’s legacy after they die. They may need to add or remove beneficiaries or make other important adjustments when their situation changes.
When people do review and update their estate plans, they often focus primarily on their wills, trust documents or powers of attorney. They may overlook another update that could cause major hassles after they die.
People often forget to update their life insurance arrangements
A life insurance policy may play a very important role in someone’s estate plan. It could help an individual’s family members pay off a mortgage or the remaining balance on the decedent’s student loans. People sometimes reference their life insurance in their wills or trust documents. They may then wrongfully assume that updating those documents can alter who receives their life insurance proceeds when they die. Contrary to what people frequently assume, an estate plan does not control the distribution of life insurance. The beneficiary designation paperwork filed with the insurance provider dictates who receives funds from the policy when someone dies.
People who adjust instructions about life insurance in a will or trust may assume that their new instructions determine the beneficiary of their policy funds after their passing. However, if there is a conflict between their estate planning paperwork and the documents filed with the insurance provider, the insurance paperwork is what has the final authority to determine the beneficiary of the policy.
In some cases, contradicting documents may lead to protracted probate litigation. Conflicts between multiple parties expecting to receive life insurance proceeds could undermine someone’s estate plan and diminish the total value of their estate by generating probate court costs.
When someone updates estate planning paperwork, they may need to revisit their beneficiary designations for their life insurance policy. Any similar paperwork filed with financial institutions, like transfer on death documents, may also require review.
Taking the time to properly review and update estate planning paperwork can help people to better ensure that they create a lasting and meaningful legacy. Those who learn from the mistakes of others can potentially maximize the positive impact that their estate has on others when they die.