topic | life planning - legacy

Step 5: organize beneficiary designations

Designation of beneficiaries is a simple and effective probate avoidance technique. It clearly defines, ahead of one's death, how to allocate assets and requires little legal paperwork.


Activity 1
: Designate beneficiaries for financial accounts

By designating beneficiaries on all financial accounts, one ensures that, upon death, the associated assets will be transferred outside of Probate. Use Investments as a reference for summarizing beneficiaries listed on all financial accounts. Beneficiaries designated on financial accounts override the Will.

Best Practices

Periodically review the beneficiaries listed on all financial accounts to ensure that designations are not in conflict with the intent of the Will.

Typical financial accounts that allow beneficiary designations include:

  • Life Insurance Policies
  • Annuities
  • Bank Accounts  (these can be co-owned, Payable on Death (POD), Transfer on Death (TOD)).
  • Retirement accounts, such as 401ks, IRAs.
  • Pension plans
  • Stocks, Bonds (including Savings Bonds), Money Market Certificates
  • Certificates of Deposit (CDs)

Best Practices

Designating a minor as a beneficiary is not recommended. Doing so requires the courts to supervise the assets. A better choice might be to create a Trust. Consult an estate attorney and financial advisor if considering making a minor a beneficiary.


Activity 2
: Beneficiaries and defined-benefit pension plans

Beneficiaries are designated on defined-benefit pension plans. The Employment Retirement Income Security Act (ERISA) governs the administration of private retirement plans. The Act specifies that employers must offer a survivor benefit option, called a Qualified Joint Survivor Annuity, effective post-retirement. In electing this option, the pension holder receives a reduced pension benefit during their lifetime in return for the surviving beneficiary continuing to receive the deceased's pension benefit (at a minimum of 50%) for the rest of their life. Specifics about your plan can be found by visiting the local employer benefits office.

Activity 3
: Considerations when assigning beneficiaries

Below are suggested considerations when assigning a beneficiaryto the financial instruments listed in Activity 1:

  • Avoid designating as a beneficiary someone who has been determined to be "incapacited" or "mentally incompetent" (i.e. unable to make a decision) as court involvement may be required prior to distribution of funds.
  • Do not assign a minor, as described previously.
  • Avoid assigning 'the estate' as a beneficiary as the distribution of funds then becomes part of probateproceedings.
  • Establish a trust that controls the time and incremental distributions for beneficiaries considered 'irresponsible' spenders.
  • Note that a beneficiary has no legal obligation to assist in funding estate debts and is also not obligated to distribute assets based on verbal instructions of the decendent.
  • A beneficiary who is also currently receiving government assistance could lose that benefit or have it significantly reduced.
  • Distribution of funds to beneficiaries can have tax consequences for the estate. Careful planning should be made to avoid excessive taxation.

It is recommended to utilize the services of a financial advisor and anestate attorney when when designating beneficiaries as part of your overall estate plan.




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