Often overlooked, the beneficiary designation can help move assets directly to heirs without going through the probate process.
Many accounts and financial products allow the owner or investor to designate a beneficiary, who will receive the asset directly when the owner passes away. This is something that most of us encounter when we open a bank account, purchase an insurance policy or start a retirement savings plan, according to the article, “A simple way to simplify estate planning,” appearing in the Tupelo (MS) Daily Journal.
The type of assets that permit beneficiary designations also include annuities, transfer-on-death investment accounts, pay-on-death bank accounts, stock options and executive deferred compensation plans.
Remembering who the beneficiary is on these accounts can be difficult. However, when you consider the consequences of having the incorrect person named on the asset, it’s well worth the effort. Due to the importance of the beneficiary designation, note these reminders:
- Designate beneficiaries. Without this, assets can be tied up in probate court, resulting in delays, costs and unfavorable tax treatment.
- List a primary and contingent beneficiary. It is common to have a spouse as primary beneficiary, and a child as contingent, which lets the asset pass to the child, if the spouse has also passed away. You can also name a charity you support to be the contingent.
- Keep things up-to-date. Any time there’s a birth, adoption, death, marriage or divorce, you should review your accounts and polices.
- Go through the instructions on the form before signing it. Beneficiary forms can vary, so review each one.
- Coordinate your beneficiary designations with your will or trust documents. If they don’t, it could cause the probate process to be delayed.
- Work with an estate planning attorney before naming a trust as a beneficiary. Tax consequences may be different for a trust than for an individual, so some situations make a trust a wise option.
- Know the tax consequences of naming a beneficiary of a particular asset. That’s because every asset does not have the same tax treatment.
Far too many people learn the hard way, that whatever is on the beneficiary designation determines who receives the asset, no matter what is in your will. Make a list of all of assets that have this designation and review it when you review your estate plan. If you don’t have a contingency beneficiary, add that as well. Your estate planning attorney will be able to help you, if you run into any questions and to ensure that your beneficiary designations align with your overall estate planning goals.
Reference: Tupelo Daily Journal (November 2, 2018) “A simple way to simplify estate planning”