When planning your estate, you will name beneficiaries to receive your assets when you are gone. However, life is uncertain, and those people might pass away before you do. As such, it is wise to name alternate beneficiaries.
An example
While you are going through the estate planning process, you will have to name beneficiaries. However, unforeseen events can happen. If your beneficiary passes away before you do, they can obviously no longer receive an inheritance from your estate.
For example, you name your spouse as a beneficiary, but you both die suddenly in a car accident. You and your spouse did not have any children, and you do not have any children from a prior relationship. However, you decided to add your niece as an alternate beneficiary to an insurance policy. Your niece would receive the insurance proceeds
Keeping your documents updated
It is very important to always keep your estate planning documents updated. This includes legal documents, will, powers of attorney, living trust, beneficiary designations and more. In addition to changing beneficiaries in the event of a death, you should check and possibly rename your beneficiaries if you get a divorce, marry or remarry, have a child or move to another state.
What if there are no alternate beneficiaries?
If you fail to name alternate beneficiaries and one you named dies, the following could happen to an asset:
- It goes to a residuary beneficiary.
- It goes to the beneficiary’s descendants.
- It goes to your heirs in the way it would if you did not have a will.
Bottom line: have backup beneficiaries in mind just in case your beneficiary passes away.
