Deciding on and naming your Beneficiaries is an important part of your financial and Estate Planning. When I sit down with clients, many are surprised to learn that there are opportunities to name Beneficiaries both inside and outside of their Estate Planning. The purpose of this post is to describe in basic terms the 4 things you should know about choosing Beneficiaries.
1. First, you need to know the basics about Beneficiaries. Beneficiaries named in your Estate Planning usually occurs in your Last Will and Testament or in a Trust that you may have created. These Beneficiaries will receive the specific assets you designate from your estate. However, there are other Beneficiaries that you need to be aware of because you are able to name Beneficiaries for a broad range of assets, including retirement plans, annuities, life insurance policies and bank accounts. All of these assets fall outside of your Estate Planning and are not covered by your Last Will and Testament. Rather, these types of assets are controlled by the contract you signed with the company that holds these assets, accounts and contracts. On these contracts you can name different types of Beneficiaries such as individuals, charities, and/or trusts. Whether you can name young children under the age of majority — age 18 or 21, depending on the state in which you live – depends on the law in the state in which you live.
When you name a Beneficiary, in your Last Will and Testament, typically, a probate will need to occur before the property or assets you designate can be transferred. However, your retirement plans, annuities, life insurance policies and bank accounts can pass directly to your named Beneficiaries and won’t have to go through probate. In addition, even if you’ve put in you Last Will and Testament, that you want your retirement plans, annuities, life insurance policies and bank accounts to go to a specific person, the contract you have with the Company that holds that contract, and the Beneficiaries that you name in that contract, will override bequests you’ve made in your will. Understanding these differences will help you in naming your Beneficiaries in each of these documents.
2. Second, keep your designations up to date. Because life changes regularly, you need to plan to review your Estate Planning and Beneficiary designations regularly. I often tell my clients that any major life event, such as a marriage, a divorce, the birth of a child, the death of a loved one, or just the passage of a good deal of time, is a reason to review your Estate Plan and Beneficiary designations. When these things happen, it may change your plan. You want to review your plan to make sure it still accomplishes what you want. Likewise, if your employment has changed, or you have new retirement-plan or insurance providers, you will want to check your Beneficiary designations, because the Beneficiaries you specified with your previous employer or provider will likely NOT automatically carry over to the new one.
3. Third, be specific with your Beneficiary designations. Some people have a trusted friend or relative, and are tempted to name him or her as their Beneficiary. They do this assuming that their trusted friend of relative would “know” how to distribute their assets in accordance with their wishes. Don’t do this. It’s possible that your trusted friend or relative won’t know precisely how you’d want those assets distributed. Also, your trusted friend or relative may simply decide to keep all of your assets for themselves, and they would be protected by the law in doing so. More than likely though you are simply making the matter more complex that is necessary. Even if your trusted friend or relative distributes the inherited assets to others, those assets will still be considered part of your trusted friend’s or relative’s estate when he or she passes away.
The best advice is to just be specific with naming your Beneficiaries. If you want assets to go to a particular person or to a group of people, list them directly in the Beneficiary designation form. Most of these forms allow you to name single or multiple primary and/or contingent (secondary) Beneficiaries and to specify what percentage of assets you’d like distributed to each person upon your death.
4. Fourth, complete your entire Estate Planning plan. Most people think that Estate Planning is only needed by the wealthy. This simply is not true! Designating your Beneficiaries is actually one of the first steps in creating an Estate Planning plan. Like I mentioned above, creating a Last Will and Testament is needed and vital step every adult should consider, regardless of their financial circumstances. For an overview of the basics of estate planning, please visit our web-site racinelaw.net.
Call us toll free at 877-232-6101 or 208-232-6101 for a consultation with Lane Erickson and the Racine Olson team of Estate Planning Attorneys in Idaho. You can also email Lane Erickson directly at lve@racinelaw.net. We will answer your Idaho Estate Planning questions and will help you determine how to meet your personal estate planning needs.