Did you know that if prepared incorrectly, your beneficiary designations can redirect your property from your intended recipients, create the need for additional court procedures and make an otherwise coordinated plan an administrative nightmare?
Wealth Advisor’s recent article, “Designated Survivor: Beneficiary Designations Can Make–or Break–Your Estate Plan,” reminds us that beneficiary designations override the terms of your will or trust. To avoid any unintended consequences, it’s very important to review your designations with your estate planning attorney. Think about the following:
Children. Many people name their children as beneficiaries on their accounts and other assets, without knowing the consequences of this choice. If a minor inherits an asset in this way, a guardianship proceeding will likely be required to appoint a guardian to receive and manage the inherited assets on behalf of any minor child. The court proceedings are costly and time-consuming. In many states, the court will place restrictions on how and when the money can be used for the beneficiary during the guardianship. When you designate a person with disabilities as a beneficiary, it may impact his or her ability to qualify for public benefits. These issues can be avoided by naming a trust as the beneficiary.
Major Life Changes. We all experience changes. They can include major changes like birth, death, marriage, divorce, a new home or a job change. However, people frequently neglect to look at their estate plans and beneficiary designations, when these events occur. Coordinating your beneficiary designations with your estate plan, can eliminate the need to update your beneficiary designations with each life change. At the very least, it will give you with some guidance on the types of situations that should cause you to conduct a review and to update these forms.
Trusts. You may have, or want, a revocable trust in your estate plan. This will give you additional privacy, flexible administration and important protections for your beneficiaries. Beneficiary designations are an ideal way to transfer your assets into your trust and to leverage the benefits of trust planning, without impacting the ownership of assets during your lifetime.
Retirement Accounts. When it comes to selecting beneficiaries for income tax deferred assets, like IRAs or 401(k)s, it’s usually a spouse who is named as the primary beneficiary. This maximizes the income tax deferrals and other administrative privileges provided to surviving spouses. Deciding on the contingent beneficiary is a little harder, because there are income tax and other considerations that should be evaluated when making this decision.
There’s no one-size-fits-all plan for beneficiary designations. However, knowing the implications of your choices and making certain these designations are coordinated with your estate plan, can save your heirs time, money, and stress. Talk to your estate planning attorney about your designations to ensure that assets will transfer as intended and in an efficient manner.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Wealth Advisor (August 6, 2018) “Designated Survivor: Beneficiary Designations Can Make–or Break–Your Estate Plan”