The Simplest Part of Estate Planning is Often Overlooked

“No legacy is so rich as honesty” (William Shakespeare, All's Well That Ends Well)

Life is unpredictable. That is why every astute investor thinks about what will happen to their loved ones when they pass away.

Having an estate plan in place makes sure that your family will be cared for. Or at least it should if you keep it up to date.

Unfortunately, many people forget to review their life insurance, retirement policies or annuities as their lives change. Your children grow up, you may get divorced, you may lose a spouse, or many other things might change in your circumstances.

When this happens, your policies are often the last thing on your mind. That is why it is important to review them every year to make sure that the beneficiaries you have nominated are still relevant.


What you intended

Unfortunately, it is all too common for people either to not nominate beneficiaries at all or to nominate their beneficiaries when a policy is taken out and then forget about it. Common problems include:

• Ex-partners still being listed on a policy after a divorce.
  
  
• Children still being listed after they have grown up and no longer need the support.
  
  
• Deceased individuals still being listed.
  
  
• Names being misspelled or ID numbers recorded incorrectly.

Some of these are more problematic than others, but they can all cause complications when the policyholder dies. They will also mean that the policy won’t be paid out as they really intended.


What to know

That is why it is worth having a regular check-up on all your life policies, endowments, retirement products and life or living annuities. Each of these will have listed beneficiaries, and it is important to make sure they are up to date.

When listing beneficiaries, bear in mind that:

• You can nominate anyone to be a beneficiary, including your own estate. What is important is to be clear in your mind what the benefit is for – will it be to cover the costs within the estate like taxes and executor fees, for example, or will it be to ensure that your spouse or children are cared for?
  
  
• You can nominate more than one beneficiary. You simply need to state the percentage you wish paid out to each one.
  
  
• You can nominate a minor as a beneficiary; however, the money cannot be paid directly to them. It will be paid to their guardian. That is why it is sometimes better to have the money paid into a trust, of which the minors are beneficiaries, so that you can be more certain that the money will be used in their interests.
  
  
• You can change beneficiaries at any time by informing the company managing the policy in writing.
  
  
• If you do not nominate a beneficiary, or if your beneficiary has died before you, the benefit will be paid into your estate.

It is important to appreciate that your will cannot change how benefits of an insurance policy are paid out. The insurer is obligated to pay the beneficiary nominated on the policy.

Another key consideration is that any living annuity or life annuity is, legally, an insurance policy. Therefore, the insurer must pay out to the nominated beneficiaries.

A retirement product like a pension fund or retirement annuity is, however, different. Although you may be asked to nominate beneficiaries, the trustees of the fund have to determine that your dependents are taken care of first.

For example, if you have divorced and your ex-spouse has custody of your children, it is likely that they will be considered ahead of your new spouse, even if that is who you list on the policy.

To review your estate planning and ensure that your beneficiaries are up-to-date and relevant, speak to your financial adviser.