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What is the importance of beneficiary designations?

On Behalf of | Aug 25, 2022 | Estate Planning

One of the most important aspects of estate planning in Maryland is ensuring that chosen people inherit your estate. To ensure your assets are distributed as you desire, you need to check that your beneficiary designations are up to date and changed as situations are altered.

What are beneficiary designations?

A beneficiary designation is an estate planning tool that specifies who will inherit certain of your assets upon your death. These assets include life insurance policies, retirement accounts and bank accounts.

Why are they important?

One of the benefits of having a beneficiary designation is that it can prevent your estate from going into probate. Probate is the legal process of distributing your estate through the courts to your next of kin after you die. It can be lengthy and expensive, so avoiding it is ideal.

Another benefit of beneficiary designations is that they can help ensure that your assets go to the people you want. If you don’t have a beneficiary designation, your assets may get distributed according to state law. As a result, assets may not be distributed as you wish them to be.

For example, if you are married and don’t have a beneficiary designation, your spouse may not inherit everything. Instead, it would be divided between your spouse and your children. On the other hand, if you did have a beneficiary designation in place, you could be sure that your assets would go to the people you want them to.

How should you set them up?

First, you should make sure that you name primary and contingent beneficiaries. A primary beneficiary is a person who will inherit your assets if you die. A contingent beneficiary is a person who will inherit your assets if the primary beneficiary dies before you do. It’s essential to have both primary and contingent beneficiaries documented if something happens to the primary beneficiary.

Whatever you do, remember that it’s essential to keep your beneficiary designations up to date. If you want to change your beneficiary designation, be sure to do so in writing and ensure that the new designation is filed correctly.