4 Mistakes When Choosing Beneficiaries and How to Avoid Them

Avoid these mistakes when choosing your beneficiaries

Purchasing a policy provides peace of mind not only for you, but also for those who the policy protects. That’s why it’s so important to make sure you’ve chosen the proper beneficiaries. Here are four common mistakes to avoid.

1) Not naming a contingent

If your primary beneficiary dies with or before you, your policy will essentially be treated like it has no beneficiary.

2) Naming one child

It seems like a good idea. One child can be the beneficiary, handle funeral arrangements, and then distribute the remaining money to siblings.

Not so fast. In addition to possibly creating stress and conflict among family members, the beneficiary may have to pay a gift tax on the money he or she distributes.

3) Naming your estate

Naming your estate means that your policy payout will go through a probate hearing. To avoid probate, name a person (or people) or create a trust.

4) Forgetting to update beneficiaries

Have a new child? Have an adult child you don’t need to protect? Have you divorced and remarried? It’s a good idea to evaluate your beneficiaries every few years or after any significant life event.

This is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.