Life insurance, bank accounts, savings bonds, and stocks are just some the financial instruments that may require beneficiary designations. After a divorce or other life changing event, like a marriage, birth of a child, or adoption, these designations may need correcting. Much of the careful work of future planning can be undone by a few inadvertent designations.
Financial planners note that this is significant problem, driven by the number of forms that now contain beneficiary designations and the difficulty most people have in remembering who has been designated on what documents.
The designations do serve useful purposes, as they can insure a particular asset passes directly to an intended person. When properly implemented, they help avoid probate for certain assets and have positive tax planning consequences. Unfortunately, what may have been an ideal plan in 1982 may make little sense in 2012, and could result in an outcome that is unexpected.
If your children pre-decease you, some of your grandchildren may be excluded from distributions.
Because the distribution upon your death is made only to your living children at that time, any grandchildren of a pre-deceased child would be excluded from the distribution. This can lead to unplanned and unpleasant family situations, and can be avoided by carefully designing the gifts to ensure that distributions account for all of the potential, intended heirs.
Arizona's Revocation Statute
Also of concern to Arizona residents is the "Revocation by Divorce" statute which will automatically remove a divorced spouse from some financial documents, like life insurance policies upon divorce. During your divorce, you should discuss this with your attorney and review all potential financial documents that may be affected by the operation of this statute.
The statute won't add new beneficiaries, so even if it prevents your ex-spouse from receiving the proceeds of an insurance policy, your future planning may still be severely disrupted by unplanned assets dropping into your estate.
Whether your estate plan is minimal or comprehensive, chances are that changes must be made to it following a divorce.