A Guide to Selecting Beneficiaries
What is a beneficiary?
A beneficiary is a person or entity that you select to receive your assets upon your death.
How can I name a beneficiary to receive my assets upon my death?
You can designate beneficiaries for specific assets, such as life insurance, retirement, bank, and investment accounts. You can also designate beneficiaries to receive a portion of your estate through estate planning documents such as a Will or Trust. If you have not designated beneficiaries to receive your assets upon your death, state statutes will determine how your assets will be distributed and to whom. Failure to designate beneficiaries is also very likely to involve the expense and delay of probate, which, with proper planning, can be avoided or minimized.
What factors should I consider when designating beneficiaries?
Generally, people wish for family members or close friends to receive their assets. However, you have the right to name anyone as a beneficiary. That said, there are a few things to know when selecting beneficiaries.
Age: You may wish to benefit your minor children or children who are important to you. Minor children cannot inherit funds directly. There are estate planning methods, such as trust planning or designating a guardian, to specifically provide and address this issue. If you have not undertaken those steps, it is important to be aware that any funds designated for a minor may require court intervention to provide for the administration until the beneficiary reaches the age of majority.
Disability: You may wish to benefit a person who has special needs and may be reliant upon public benefits. It is important to be aware that special planning is often necessary to provide not only for the administration of those funds but also to ensure that the inheritance does not disqualify the beneficiary from other important benefits. This is often done through the creation of a trust.
Financial Need and Tax Implications: Consider who has financial need and who may face negative tax implications by inheriting your assets. Special consideration should be given, especially in the case of tax-deferred retirement accounts.
Other special considerations concerning your beneficiaries’ money management: You may wish to benefit a family member or friend who may struggle with addiction, mental health challenges, or is not skilled in managing money. There are ways to accomplish these goals with proper estate planning.
Always check your beneficiary designations to ensure they are consistent with your current goals and desires, i.e., every few years, or upon a birth, death, or divorce in your family.
Selecting a beneficiary and making an estate plan is rarely a “one-and-done” process. You may marry or divorce and wish to change your beneficiaries accordingly. Your beneficiaries may marry or divorce, and that may influence how you wish to transfer assets. New members may join your family through marriage, birth, or adoption and your prior beneficiaries may not take them into account. It is wise to look at your beneficiary designations across all of your assets (including transfer of death beneficiaries on all of your accounts) to ensure that the individuals or entities you have named are still the ones you wish to receive your assets today.
Make sure your beneficiary designations actually align with your estate planning goals.
It is wise to have a comprehensive estate plan that considers all of your specific facts, circumstances, assets, goals, and desires. Even if you already have an estate plan in place, it is wise to ensure that your individual beneficiary designation with various accounts and financial institutions is aligned with your estate planning goals. It is entirely possible for your beneficiary designation on your accounts, for example, to conflict with the way you would otherwise want your estate to be handled on your death as set forth in your Will.
Contact Maguire Law to evaluate your goals and create or update an estate plan that achieves your objectives.
*This blog is for educational purposes only and does not constitute legal advice.
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