It is common for a person to have very specific ideas of where exactly they want all their various assets to go when they die. Thus, it is understandable that a person, when estate planning, often puts a great deal of energy into making sure that their first choices for what will happen with their assets post-death are enshrined into their estate plan. One thing it is important for a person to not forget about though in the midst of this focus is the importance of having a backup plan in place in case their first choice for some reason isn't able to be followed through on.
What might cause a person's first choices for after-death asset distribution to not be able to be followed through on? One common reason is if the individual the person's estate plan would have given assets to died before the person the estate plan belonged to did.
Failure to have a backup plan in place in case of these sorts of circumstances could have some problematic effects.
Take for instance, something that is a part of many people's estate plan: a life insurance policy. Typically, when a person with a life insurance policy dies, the benefits of the policy go to the party that is listed as the primary beneficiary in the policy. Generally, in addition to being able to name a primary beneficiary in their life insurance policy, a person can also name backup beneficiaries in case the primary beneficiary predeceases them.
However, some people just name a primary beneficiary on such policies, and thus fail to put a backup plan in place. Failing to name backup beneficiaries on a life insurance policy could have several undesirable impacts if the primary beneficiary ends up dying before the person the policy belongs to, including:
- The benefits ultimately going somewhere other than where the person the policy belonged to would have wanted them to go.
- The benefits being subject to probate.
Thus, setting up appropriate backup plans can be a very important part of building a strong estate plan. Estate planning attorneys can help individuals understand how backup plans can be included in the various different types of estate planning devices and can assist them with getting backup plans set up.
Source: LifeHealthPro, "10 ways to screw up when picking life insurance beneficiaries," Barbara Marquand, Feb. 19, 2015