Last week we discussed estate planning. An important issue of estate planning is naming beneficiaries. Beneficiary designations are often overlooked, as we can presume that it is covered within the will/trust itself. Today, let’s consider the reasons to uncover the accounts that typically ask you to designate a beneficiary and what to think about when designating a person(s) to be named as a beneficiary.
Beneficiary is defined as:
- a person or group that receives benefits, profits, or advantages.
- a person designated as the recipient of funds or other property under a will, trust, insurance policy, etc.
As we work and accumulate assets, we are asked to sign forms designating a beneficiary (someone who will inherit) to receive what we have built up should something happen to us. It is a good practice to review any/all beneficiaries to make sure your designation is up to date, especially when “life happens” (i.e. moves, marriage, divorce, death of a designee).
When a designee is not named or is incorrectly named, there can be problems with disbursement of your funds. If you name a minor child for example, the laws limit inheritance amounts until they reach a legal age and if they are a co-owner of an account they may be liable for your final creditor claims and/or experience large tax consequences.
If you do not name a beneficiary, there may be contract provisions that designate a default recipient which may or may not represent your wishes. In the case of a special needs child, you may impact their receipt of government aid for their disability. If you have remarried, make time to go back in time to accounts you had in your “previous life” to check the beneficiary for those accounts.
Remember to consider back-ups. Should something happen to a designee, you’ll want to consider a Plan B.
Here is a listing of common places asking for a beneficiary designation:
- Financial Accounts
- Retirement Accounts
- Investment Accounts (includes annuities)
- Stock Option Plans
- Pensions
- Insurance Policies (i.e. Life Insurance)
- Real Estate Holdings (Including timeshares)
- Partnerships (Buy-sell Agreements)
This time of year is often a time when financial institutions reach out to us asking if we wish to update a/any designation. When those letters come in, it is a great time to check if/who you have designated as a beneficiary to the account. If your form is not as you wish, take care to update with correct information and keep a copy of the changes you make in writing with the company. Speaking of copies, it is helpful to keep copies of all beneficiaries in a safe place for you and for the executor of your estate.
Last, but not least – communicate! Communicate with recipients and with your executor about your wishes and plans. If you’d like some help assessing where you are today and what’s important to consider moving forward let’s get ready together!
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