Beneficiary designations are a popular way to specify who should inherit certain assets, such as IRAs, life insurance policies, and bank accounts, upon the owner’s death. These designations can be useful in avoiding probate and allowing beneficiaries quick access to the assets. However, there are potential drawbacks to using beneficiary designations that individuals should be aware of before making these decisions.
One issue that can arise is when a beneficiary designation conflicts with the wishes outlined in a will. For example, if a will states that assets should be divided equally among children but one child has been added as a joint owner or beneficiary on an account, that child could potentially own the account entirely upon the death of the account holder. This could lead to legal disputes and strained relationships among family members.
Another problem that can occur is when a family has assets with varying values. For example, if a family owns land that has significantly appreciated in value as well as cash assets such as bank accounts and investments, designating one child as the beneficiary of the land and the other as the beneficiary of the cash assets could result in an unequal distribution of the estate. This can be especially problematic if the value of the land was not significantly higher than the cash assets at the time the beneficiary designations were made.
To avoid these issues, it is important to carefully consider the potential consequences of beneficiary designations and consult with an estate planning attorney. An attorney can help ensure that your wishes are properly carried out and can advise on alternative strategies for avoiding probate and providing quick access to assets for beneficiaries.
