Life insurance policies and bank accounts come with beneficiary designation documents, which list recipients of assets. While designating beneficiaries might seem straightforward, it can lead to disputes and complications if not handled with care.
Fortunately, understanding the common reasons for disputes can help avoid potential issues among your heirs after you are gone.
Outdated information
Life is dynamic, and beneficiary designations should reflect life changes. Failing to update beneficiary information after major life events like marriage, divorce or the birth of children can create confusion among heirs. This may result in conflicts when outdated designations do not align with an individual’s current intentions.
Multiple beneficiaries
While you can designate multiple beneficiaries, you must do so carefully. This includes specifying the distribution percentages to avoid disputes. For instance, if someone names their three children as beneficiaries without indicating how to divide the assets among them, it can lead to disagreements regarding who gets what.
Beneficiary predeceases
A common but often overlooked issue is when a beneficiary predeceases the account holder. In such cases, it is important to specify alternative beneficiaries or contingent designations to avoid disputes about where the assets should go if the primary beneficiary is no longer alive.
Legal or financial complications
Legal issues can also give rise to disputes. For example, if a beneficiary has legal issues or financial liabilities, distributing assets to them can be problematic. Creditors or legal authorities may stake a claim to the assets, leading to disputes over who rightfully deserves the inheritance.
Competing claims
Sometimes, multiple individuals feel entitled to the same assets. This typically occurs when there is confusion about the account holder’s intentions or if there is a dispute over the validity of the beneficiary designation. Competing claims can result in lengthy legal battles and strained relationships among family members or loved ones.
Lack of communication
In many cases, you can avoid beneficiary designation disputes through open communication. Failing to discuss one’s intentions with potential beneficiaries can lead to misunderstandings and disagreements. People often assume they know the desires of the account holder, which may not align with the actual beneficiary designation.
According to AARP, 32% of Americans in 2022 stated that they put off estate planning. Along with wills and other tools, making sure that beneficiary designations are accurate is an important step to protect your assets.
