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Don't forget beneficiary designations during estate planning

Estate planning is much more than just drafting a will or moving assets into a trust. Of course, those are very important parts of the process, but there are many additional aspects of a comprehensive estate plan.

Did you know, for example, that health care directives are key parts of your estate plan? A health care directive allows you to explicitly set out your desires regarding medical treatment, including listing any preferred providers or hospitals, put limits on resuscitation efforts, and state whether or not you want artificial respiration, ventilation and nutrition. With a health care directive (sometimes known as a "living will," "health care proxy," or "healthcare power of attorney"), you can also name someone to make decisions on your behalf if you become incapacitated.

A key component that many miss

Another important aspect of estate planning involves naming beneficiaries for key property like bank/investment accounts, retirement or pension funds, and insurance policies. These designations may change depending on major life events, and will need to be updated. Such events include:

  • Marriage (or remarriage)
  • Divorce
  • Death of a named beneficiary such as a spouse, child, parent, or other relative or loved one
  • A child reaching the age of majority (so he or she could manage the funds alone, and won't need a caregiver to do so)
  • Birth or adoption of a child
  • Estrangement from a named beneficiary

The need to periodically review and update beneficiary designations is well-illustrated with an example. Imagine you and your spouse divorce. The person you once loved and had named as the beneficiary of your life insurance, accounts and pension, is now no longer in your life. After a while, you find love again and remarry. Unless - and until - you update the beneficiary designations for each individual asset, your former spouse will inherit them after your demise, to the detriment of your current spouse, children or other loved ones. Is this really what you want?

Under California probate law, a divorce has a direct impact on a will or trust document; dissolution of a marriage automatically invalidates bequests to your former husband or wife. It does not, however, have an impact on beneficiary designations. Proactive change of these is required for them to be effective.

An experienced estate planning attorney will explain such important distinctions that can easily be missed if you try to "do it yourself" via an online will form or software package. You can even arrange to have documents periodically reviewed to account for life events. To get started on your estate plan, or to update things following a substantial change in your circumstances, contact a local estate lawyer.

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