You spent time creating an Estate Plan to make life easier for the people you love. You carefully chose who should make decisions if you become unable to, who should inherit your assets, and how you want your family cared for in the future.
Then, years go by and life changes. You change jobs, you get married or divorced, children or grandchildren are born, retirement accounts grow, or insurance policies change. Yet one small detail often gets overlooked: your beneficiary designations.
Many people are surprised to learn that beneficiary designations can override even the most carefully prepared Estate Plan. This means that your Estate Plan may say one thing while the beneficiary designations for your retirement account or life insurance policy say something completely different. This happens more often than you might think, and it can leave families confused, frustrated, and facing unexpected legal complications during an already emotional time.
The good news is that these problems are usually preventable. Taking a little time to review your beneficiary designations can help ensure your wishes are honored and your loved ones receive the assets you intended for them. Let’s look at some of the most common beneficiary mistakes Michigan families make and how you can avoid them.
Why Beneficiary Designations Matter More Than Many People Realize
When people think about Estate Planning, they usually think about drafting a Will or creating a Trust. Those documents are certainly important, but they are only part of the picture. A Will or Trust will identify who your beneficiaries are, but any beneficiaries named in a beneficiary designation will supersede the beneficiaries named in your Will or Trust. Assets with named beneficiaries will transfer automatically without having to probate a Will or administer a Trust.
When you utilize Estate Planning with a Will, you will have to rely on naming beneficiaries on your assets if you want to avoid having to probate the Will. When you utilize Estate Planning with a Trust, you should name your Trust as the beneficiary on your assets. This will avoid the assets being administered through probate and ensure that the assets are distributed according to your wishes in the Trust.
Unfortunately, many people believe or assume that regardless of what their beneficiary designations say, their wishes in a Will or Trust are what control the distribution of their assets. This is just not the case.
Common Beneficiary Mistakes
Even people who are diligent about their Estate Planning still make mistakes with their beneficiary designations. Here are some of the most common mistakes we see.
Forgetting to Update Beneficiaries After Major Life Events
Life rarely stays the same. Marriage, divorce, remarriage, the birth of children, deaths in the family, and retirement all change your personal circumstances. Yet many beneficiary designations do not get changed even in the face of these major life events.
Perhaps you named your parents when you opened your first retirement account after college. Years later, you’re married with children, but your parents are still listed because you never thought about updating the paperwork. Maybe you named your spouse twenty years ago, but after a divorce, the paperwork was never changed. These situations happen every day.
Regularly reviewing your beneficiary designations helps ensure your assets reflect your current wishes instead of decisions you made many years ago.
Naming Only Primary Beneficiaries
Many people remember to list a primary beneficiary but never choose a contingent beneficiary. A contingent beneficiary receives the asset if the primary beneficiary passes away before you. Without a contingent beneficiary, your asset will likely be administered through probate, creating delays and additional expenses that could have been avoided. Adding contingent beneficiaries is a simple way to provide an important layer of protection for your family.
Naming Only One Child as a Beneficiary
Unfortunately, family conflict often arises when one child is named as a beneficiary and the parents’ intent is not legally binding. Often, a parent will choose to name one child (maybe the oldest) as the sole beneficiary of their assets. The reasons vary. Maybe they think it will be easier for one person to collect the funds, or they don’t trust one of their children to directly receive a large sum of money.
The consequences of this can create conflict and generate litigation, or leave one child with an unintentional tax burden. Even if your intention is for that one child to share with their siblings, there is nothing legally binding them to do so. They also get stuck footing the tax bill for the entire asset, even if they do share with their siblings. Naming all of your intended beneficiaries or considering a Trust instead are going to result in much better outcomes.
Forgetting About Old Retirement Accounts or Ignoring Employment-Related Assets
Changing jobs has become increasingly common. With each new employer often comes a new retirement plan. Many people accumulate several retirement accounts over the course of their careers and lose track of the beneficiaries named on each account. One forgotten account can unexpectedly pass to someone you no longer intended to inherit your assets.
It is also common to receive group life insurance as a benefit when you work for a mid-size or large employer. These policies often have a death benefit tied to your salary. Even though you may not work for that employer in the future or when you pass away, you shouldn’t ignore or omit these policies when you set up your Estate Plan. This could be a significant asset that you will want your family to have when you pass away.
Assuming Everything Automatically Goes to Your Spouse
While spouses do receive certain legal protections under Michigan law, not every account automatically transfers to them. The outcome depends on several factors, including the type of account, ownership structure, and the beneficiary designation. Never assume your financial institution will “know what you meant.” They can only follow the legal documents you completed. Taking time to verify your beneficiary designations gives both you and your family greater confidence that your wishes will be honored.
Naming a Minor Child as a Beneficiary
Parents naturally want to provide for their children. It’s common to think, “I’ll just list my child as the beneficiary.” Unfortunately, if that child is under 18, it can create unnecessary complications. A minor generally cannot directly inherit assets. In Michigan, your child’s legal guardian will have to seek Probate Conservatorship to collect and manage those assets under the supervision of the Probate Court until your child reaches the age of 18.
Even more concerning, once the child reaches the age of 18, they will receive the entire inheritance in one lump sum. For many parents, that’s not the outcome they envisioned.
Instead, many families choose to have assets managed through a properly drafted Trust. This allows a trusted person to manage the funds responsibly while ensuring the money is used for the child’s health, education, maintenance, and support, all according to the parent’s wishes.
How Often Should You Review Beneficiary Designations?
Many people assume beneficiary designations are “set it and forget it” documents. In reality, they deserve regular attention. As a general rule, review your beneficiary designations:
- Every three years
- After getting married
- After a divorce
- Following the birth or adoption of a child
- After the death of a beneficiary
- After changing jobs
- Whenever you update your Estate Plan
Even if nothing has changed, reviewing your beneficiary designations provides peace of mind that everything is still aligned with your wishes.
A Simple Beneficiary Review Checklist
If it’s been several years since you looked at your beneficiary designations, now is an excellent time to review them.
Ask yourself these questions:
- Are my beneficiary choices consistent with my current Estate Plan?
- If I have a Trust, is my Trust properly named as a beneficiary on my assets?
- Do my assets have both primary and contingent beneficiaries?
- Do I need to update any beneficiary designations because of a marriage, divorce, or the birth or death of a beneficiary?
- Have I named any minor children directly who may be better protected through a Trust?
If you answered “I’m not sure” to any of these questions, it’s worth taking the time to make the necessary updates. Small updates today can prevent significant problems for your family tomorrow.
A Small Detail That Makes a Big Difference
Estate Planning isn’t just about preparing legal documents. It’s about making sure every part of your Estate Plan works together to protect the people you care about most. Beneficiary designations may seem like simple paperwork, but they often control some of your most valuable assets. When this paperwork is outdated or inconsistent with your Estate Plan, this can unintentionally undo the careful planning you’ve already completed.
The encouraging news is that these issues are often among the easiest to fix. Taking time to review your beneficiary designations today can help your loved ones avoid confusion, reduce the risk of conflict, and provide clarity during one of life’s most difficult seasons.
At Cornerstone Legal, we believe Estate Planning should give you confidence, not uncertainty. We take the time to review your entire plan, including your beneficiary designations, so every piece works together to reflect your wishes and protect the people you love.
Contact us at (517) 708-2222 or email Katrina@CornerstoneLegalPLLC.com.
Building your foundation. Building your confidence.
Frequently Asked Questions About Beneficiary Designations
Do beneficiary designations override a Will or Estate Plan in Michigan?
Yes. In most cases, beneficiary designations on your assets will supersede the instructions and your wishes in your Will or Trust.
How often should I be reviewing my beneficiary designations?
A good rule of thumb is to review your beneficiary designations every three years and after any major life event such as a marriage, divorce, the birth of a child, or the death of a beneficiary. Regularly reviewing your beneficiary designations helps ensure your assets pass according to your current wishes.
What are the most common beneficiary mistakes Michigan families make?
Some of the most common beneficiary mistakes Michigan families encounter include forgetting to update beneficiaries after a major life event, naming only a primary beneficiary or naming only one child, forgetting about old retirement accounts or ignoring employment-related assets, and assuming everything will go to your surviving spouse.
Should I name my minor child as the beneficiary of my life insurance or retirement account?
No. When you name a minor child as a beneficiary on any asset, the most likely outcome is that your child’s legal guardian will have to seek Probate Conservatorship to collect and manage those assets under the supervision of the Probate Court until your child reaches the age of 18. A properly drafted Trust is often a better option because it allows a trusted adult to manage the assets without seeking administration and supervision through probate.
Why is it important to coordinate insurance and retirement beneficiaries with my Estate Plan?
Your insurance and retirement beneficiaries should complement your Will and Trust, not contradict them. Coordinating every part of your Estate Plan helps ensure your assets are distributed according to your wishes while reducing the risk of family disputes or unintended outcomes.
