Utilizing beneficiary designations on your accounts can be a very effective and efficient way to transfer your assets upon death to chosen beneficiaries. In your estate planning, naming beneficiaries on financial accounts, insurance policies, annuities and retirement accounts may play a very important part of the distribution of your assets upon death.
A beneficiary designation on an account is the result of an agreement or contract between the account owner and the financial institution to pay the proceeds of the account upon death of the account owner to the designated beneficiary (or beneficiaries). Designating beneficiaries on accounts permits your assets to transfer directly to that beneficiary rather than waiting for your Executor to probate your Will. If you hear the terms “POD” or “TOD”, these terms refer to the paying on death or transferring on death of your account to your designated beneficiary.
Many clients are surprised when I tell them that a beneficiary designation on an insurance policy or retirement policy trumps their will or their revocable trust. If your son is named on a life insurance policy, and your daughter is the sole beneficiary under the will, your son will receive the life insurance proceeds and your daughter will inherit the assets passing through your will (for example, real estate, cash, personal property, etc.) Therefore, it is vital that you coordinate your beneficiary designations with your will or revocable trust to avoid any confusion.
Similarly, you should review all of your brokerage accounts, bank accounts, annuities, life insurance policies and retirement accounts and make sure the beneficiaries are correctly listed. It is also important to list contingent beneficiaries on those accounts. If you have a beneficiary listed on account and he predeceases you (and you do not have a contingent listed), that account will be paid to your estate. Those account proceeds will be distributed through your will with the residue of your estate through the probate administration.
If you have minor children and would like them listed as beneficiaries, there are some simple solutions. First, you could create a revocable trust where you list your child as a beneficiary and also name a trustee to manage any inheritance for that child. Second, in a will-based plan, you could add a contingent trust in your will for the minor child and also designate a trustee for that trust. In this case, you would modify the beneficiary designation with the financial institution so that it lists your child as beneficiary, but subject to the trust in your will for his benefit.
Every few years, you should review your Estate Plan documents and check that the beneficiaries are correct. You should also ensure the persons listed in your plan as Executor, Trustee, Guardian, Power of Attorney and Medical Power of Attorney are correct. You should keep a physical record of your accounts and beneficiary designations with your Estate Plan and keep it up to date. If you would like to review or make updates to your Estate Plan, please reach out and we will be happy to help you.
If you would like some financial planning advice or strategies, we recommend you speak with a financial advisor. We have some fabulous financial advisors we have worked with and would love to introduce you – just reach out and let us know.
