Attorney & Mediator
Attorney & Mediator

Estate Planning – Beneficiary Designations

Beneficiary Designations can either simply or complicate the administration of your estate.

Life Insurance:  For some assets, the only method of passing the benefit on to heirs is by a beneficiary designation – life insurance is one.  The named beneficiary will receive the money without having to go to Probate court or through the trustee of your trust.  Therefore, make certain that these beneficiary designations are correct.

Is the beneficiary your former spouse?  Your parents?  Check to make sure and update them so that large sums of money are not passed on to unintended beneficiaries.

IRA’s, 401 K’s, Annuities: If you are married, the primary beneficiary of these assets will in all likelihood be your spouse.  In this way, there is a continuation of the income stream to them.  They will be able to transfer these benefits into their own social security number.

There should be a secondary beneficiary as well.  Best from a tax perspective is to name a person.  While there may be a redetermination of the required minimum distribution that must be taken annually, under current regulations, the beneficiaries will be able to stretch this money out over their lifetimes.

If an entity is named, the stretch opportunity will be lost.  If you make your IRA payable to your estate or your trust, it will in all likelihood be taxed as income first and distributed to your heirs second.  While they will receive the money income tax free, there will be less money to distribute.

Again as with your life insurance, check the beneficiary designations.  Make sure that you have not named a former spouse.

Other Financial Assets and Bank Accounts: It is possible to pass these assets along to beneficiaries through a transfer on death (TOD) provision.  In this way, the money distribution is not subject to the Probate court process.

Beware: If you have a Will or a Trust that has a distribution scheme, making one or more of your accounts payable to one individual can upset that distribution scheme.  If you have stated that your estate should be distributed in equal shares to all of your children, and then you have made several cash assets payable on your death to one of them, he/she will receive that money outright and still be entitled to his/her equal share of the rest.

Make sure that your beneficiary designations are up to date and that they further your estate planning goals.