Investing has a learning curve, and it can take time to feel like you’ve learned enough to know what you should and shouldn’t do. There’s one simple mistake, however, that could mess with your investing plans.
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In fact, this mistake is super common, but it can lead to big problems later on. The good news is, it’s simple to fix: updating your beneficiaries.
“How you list your beneficiary designations is an integral aspect of your financial plan, which makes it important to revisit these designations as your life evolves,” said Christopher Stroup, CFP and owner of Silicon Beach Financial.
By taking the time to properly identify your beneficiaries, you can help alleviate any hassles or delays in a future payout, Stroup said. “Better yet, it can help prevent any confusion that could arise from two folks with similar names.”
Here are some other considerations about why it’s so important to update your beneficiaries.
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Control How Your Assets Are Directed
While you may not like thinking about beneficiaries because it means considering your own passing, if you care about who gets those assets, it’s a very important step.
Designating a beneficiary simply means legally stating where you want those funds to go in the event of your death, according to David Haughton, JD, certified private wealth advisor (CPWA) and senior corporate counsel at Wealth.com. It’s a key step in making sure your loved ones can avoid probate and direct the assets in the most efficient way to whomever or wherever you desire.
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Avoid Probate
Avoiding probate is a great reason to set beneficiaries, Haughton said. He explained that probate is the legal process of transferring assets from a decedent to their beneficiaries.
“So if you pass away and you don’t have beneficiaries named or you don’t have assets that are in a trust … the court is going to oversee the disposition of the assets and that can be very costly, very time-consuming and, depending on if you have a will or not, [it’s to be seen] whether the assets are going to be disposed of the way that you wanted them to.”
If you had intended for your assets to go to your children, for example, and not a surviving spouse, but you never named them as your beneficiaries, your family will have to engage in the probate process after your death, which Haughton called long and expensive, depending on which state you live in.
“All things being equal, people usually want to avoid probate,” he said.
Update When Life Changes
It’s easy to forget to make beneficiary changes when life circumstances change, Haughton said. From births to deaths, marriages to divorces, these and more affect your assets.
“You might have had one child and then you had two more children and only one child is named as a hundred percent beneficiary,” he explained.
Or, a common issue he sees is when a person gets divorced but leaves an ex-spouse as a beneficiary on an account.
Review Beneficiaries Every Couple of Years
It’s a good idea to review your beneficiaries every couple of years, Haughton urged.
Because you might change your mind about a beneficiary, too. Even the most beloved family members may not be people you want to pass your assets along to later on. For example, he pointed out, “You could have named an outright beneficiary as a child, and maybe they’re having substance abuse issues, maybe gambling issues, maybe they’re having creditor issues, or they’re going through a divorce.”
If you review those designations annually or biannually, you’ll catch any changes needed.
Consider a Trust
If you want even more control than just designating beneficiaries, Haughton said you might want to create a trust for your assets, which can set even more specific parameters for how you want them distributed, he explained.
“You write the rule book versus where with a beneficiary designation, it’s just going to go to the beneficiaries and they can do whatever they want with it.”
Don’t Forget Your Digital Assets
Don’t forget about digital assets, which may not be directly financial, but are critical to be managed by someone, Haughton said.
“If someone set up an estate plan, let’s say 10 years ago or a little bit longer, they wouldn’t have accounted for things like social media accounts, online accounts or email,” he pointed out.
Fortunately, most service providers allow you to set legacy preferences in case you pass away or become incapacitated, giving people access to the information, he said.
“If you don’t do that, you’re kind of in a scenario where the law is going to decide who has access, if at all,” Haughton said.
If you’ve organized your information and made sure it’s available in some sort of password manager or document, you can save everyone a lot of hassles.
“Beyond just the flow of assets, I think the flow of information is important from when a person dies to the next person in line,” Haughton said.
While you may feel as sure as you think possible when you initially set beneficiary designations, Haughton pointed out that life circumstances change, such as changes in net worth, priorities and family.
If you don’t update these with some regularity, “That’s when disaster happens.”
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This article originally appeared on GOBankingRates.com: Making This Common Investing Mistake? Experts Share the Easy (but Urgent) Fix
