As you go through the process of planning your estate, you will need to designate beneficiaries for certain types of assets, including some insurance policies and accounts. For example, certain retirement plans (IRAs, 401(k)s, etc.), life insurance policies and payable on death accounts will all ask you to name a beneficiary. Beneficiary designations are independent of your last will and testament.
These designations make it easy to transfer the account or benefits to your chosen beneficiary upon your death. This is a significant part of your estate planning, as these assets can become quite valuable, especially if you’ve been paying into them for a long time.
With that in mind, here are some tips for how you can handle your beneficiary designations.
- Actually name your beneficiaries: You’d be amazed how many people neglect to name a beneficiary at all on their accounts and policies. If you fail to name a beneficiary, the account will have to go through probate, incurring additional costs and leading to lengthy delays. If there’s a default beneficiary as part of the policy agreement, that person might not be someone you want to receive the money or benefits. You should name contingency beneficiaries as well as a primary beneficiary, just in case your primary beneficiary passes away before you.
- Update your beneficiaries as needed: After major life events you should review your beneficiary designations and change them as needed. A marriage, divorce, birth or death could all be factors that lead to you changing beneficiaries.
- Make sure your beneficiaries align with your estate plan: When you update your estate planning documents, including wills and trusts, make sure you do so with your current beneficiary situations in mind. Beneficiary designations are independent of your other estate planning tools, but they’re still going to be important considerations to keep in mind as you plan your estate.
- You can name a trust as a beneficiary, but be careful: You should always work with an attorney or CPA to make sure you’re covering yourself if you choose to make a trust your beneficiary. It makes sense in situations where those beneficiaries are minor children, if you’re in a second marriage or if you’d rather have a trustee than your beneficiary controlling access to the funds. However, there are a lot of tax implications that go along with naming a trust as beneficiary, so it’s important to do some thorough planning if this is the route you want to go.
- Consider how the assets will grow: Certain types of accounts might grow more rapidly than other types of accounts, so be sure to take that into consideration when choosing individual beneficiaries, if you will have different beneficiaries for each account. Do your best to analyze the growth patterns of the accounts and what you can expect their value to be at certain points in time if you wish to make your gifts to your beneficiaries as even as possible.
MA Estate Planning Attorney
For more information and tips about how best to handle your beneficiary designations, we encourage you to contact a knowledgeable estate planning and probate lawyer at Baker Law Group, P.C.