Many people living in New York have taken the time to write a will and make end-of-life preparations. However, there may be one area that these individuals have overlooked: beneficiary designations.
When an individual purchases a life insurance policy, or enrolls in a retirement plan, he or she names beneficiaries. On a life insurance policy, this is the individual who will receive the insurance money after the policyholder dies. When it comes to retirement or other investment plans, one or more people may be named as beneficiaries of the funds in these accounts after the plan participant dies.
What many people do not understand is that directives in a will do not apply to insurance policies or retirement and investment accounts. That is why it's important to regularly update beneficiaries on all such policies and accounts.
Unfortunately, many people do not manage beneficiary designations properly, if at all. In some cases, a person may leave an ex-spouse, deceased spouse or even estranged relative as a beneficiary on a valuable policy or plan.
Another common error is to not distinguish the beneficiary from friends or family members who have a similar name. For example, someone who fails to distinguish between multiple juniors with the same name will make it very difficult for plan administrators and relatives to determine which individual is the intended beneficiary.
A third problem that often arises is when somebody names a person with a disability as the beneficiary on a policy. If the person with a disability receives government assistance, a cash windfall in the form of a life insurance or retirement account payout could create significant financial complications. The person with a disability may lose his or her cash and medical benefits. Since there are strategies for creating trusts for people who receive disability benefits, an estate planning attorney could help with the process.