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The Important Role of Beneficiary Nomination in Your Estate Plan

Estate planning often involves various documents and considerations, from wills to trusts, but one crucial element that sometimes doesn’t receive the attention it deserves is beneficiary nomination. It’s a simple process, yet its implications are significant.

The Power of Naming Beneficiaries

When you set up financial products like life insurance policies, retirement accounts, or investment accounts, you have the power to name beneficiaries. These are the individuals who will inherit these assets when you pass away. It seems straightforward, but the process is essential because incorrect nominations can materially affect the nature of the policy, result in additional estate expenses, and reduce the inheritance ultimately intended for your heirs.

The Consequences of Incorrect Nominations

Nature of the Policy:

Depending on the nature of the policy or investment, a financial planner can use beneficiary nominations to reduce estate costs and ensure that your loved ones receive their inheritance without delay.

Estate Costs:

Incorrect nominations can result in the proceeds being payable to your estate and subject to executor’s fees and potential estate duty. If the purpose of the policy is to provide liquidity in your estate, it would be suitable to nominate your estate as beneficiary.

If the proceeds are intended to provide security for your family, be mindful about nominating minor children as beneficiaries as there are limitations in how they can inherit. Where your surviving spouse is the nominated beneficiary, a deduction in terms of section 4(q) of the Estate Duty Act will apply and no estate duty will be payable.

Reduced Inheritance:

If you’ve made nominations without considering the legal implications, it can lead to delays, disputes, or complications, resulting in a reduced inheritance for your beneficiaries.

In your estate plan, make sure you review your beneficiary nominations regularly. Life events like marriage, divorce, the birth of children or grandchildren, or significant changes in relationships should prompt a review of your nominations.