Imagine you just put the final touches on a perfect agenda for a family vacation. You have everything planned down to the last detail, from dining to activities and excursions. You are beyond excited to have the entire extended family (parents, uncles, aunts, cousins) gather in a beautiful location for some long-awaited fun, rest, and relaxation.
However, you forgot one crucial element. You failed to coordinate everyone’s travel plans. After a flurry of calls, texts, and emails, you find that everyone sets their own varying means of arrival. Your parents are driving with an overnight stay to break up the drive. Your cousins are flying. Your grandmother is taking a scenic train. Uncle Eddie is loading the kids up into an RV, making several stops along the way to behold the sights.
Your perfect vacation agenda is now blemished. Some family members are arriving early, some right on time, and some incredibly late. You’re even wondering if some will even make it at all (Uncle Eddie has a track record for getting lost). Suddenly, the vacation feels more like an exercise in logistics than the downtime you desperately need. All that effort and expense perfecting the agenda rendered virtually wasted.
A Perfect Plan Gone Awry
What does a family vacation gone awry have to do with your estate planning? Well, the agenda you perfected and poured hours into is the equivalent of your estate planning documents (e.g., your last will and testament or your trust). The family members are your assets, and the various meandering ways your family members are arriving at the vacation spot reflect how your assets’ titling and beneficiary designations impact your estate plan.
Just as failing to coordinate everyone’s arrival to the vacation spot rendered your immaculate agenda asunder, failing to coordinate your assets’ titling and beneficiary designations with your estate planning documents can result in unintended consequences.
Estate Planning Is a Two-Phase Process
Many people believe that simply signing their estate planning documents, such as their will and trust, is the full extent of the estate planning process. However, that is truly only phase one of two. Phase two ensures that your assets are titled or have beneficiary designations that align with your estate planning documents.
A Common Mistake: Misaligned Beneficiary Designations
Consider this example: Suppose you have two young children. You establish a trust for their benefit, specifying that they do not get full access or control to the assets of the trust until they are age 30. You also have a life insurance policy, and your intent is that the death benefit of that policy goes to the trust for your children.
However, if you never update the beneficiary designation for that life insurance policy and it still lists your children individually (as you originally designated five years ago), what happens if you pass away?
Instead of going into the trust, the insurance proceeds will be paid directly to your children. Since they are under 18, the funds will be allocated to guardianship. That guardianship then terminates when each child turns 18. At this point, they will receive the entire balance outright—with no restrictions. The trust never even comes into play.
The Consequences of Poor Coordination
Now, imagine this issue extending across all your other assets—your house, your bank accounts, and your investments. Without properly coordinating titling and beneficiary designations:
- Some assets may go into the trust as intended.
- Others may pass directly to your children, bypassing the trust entirely.
- Some assets may go through probate, creating unnecessary delays and expenses.
Just as uncoordinated travel plans undermined your perfect vacation agenda, uncoordinated beneficiary designations can undermine your estate plan.
Completing Your Estate Plan
What is the moral of the story? Signing your estate planning documents is only half of the estate planning equation. Aligning your assets’ titling and beneficiary designations with your estate planning documents is the other—and often more critical—step.
Taking time to ensure that alignment is what truly completes your estate plan and secures the arrival of all your assets at the appropriate place and at the appropriate time (even Uncle Eddie!).
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