Make Sure Your Estate Plan and Beneficiary Designations Match

There are quite a few types of assets that pass outside of probate court. This is possible through the use of beneficiary designations. When you pass away, the asset will be distributed directly to the beneficiaries without needing to jump through the hoops of probate court. Since there’s a listed beneficiary on the asset, you should make sure the designation is up to date and is consistent with the remainder of your estate plan.

Estate Plan and Beneficiary Designations

Typically, when you open a retirement plan or investment account, the company recommends that you name beneficiaries who will receive the account or plan after your passing. The beneficiary you chose years ago may no longer be the person you wish to inherit the property, and you may not have considered your estate plan at the time. If you’re unsure who is named as a beneficiary, you should request a copy of your beneficiary designation forms. You should make sure the listed beneficiaries are consistent with your estate plan. If you created the designations online, you should print and keep a copy of the form for your records. Once you have all of the documents together, you should put them with the rest of your estate plan documents, so they’re easily accessible after your passing.

If you’re trying to determine how to make your beneficiary designations, you should consider the following:

  • Bank accounts or investment accounts: If you have a Living Trust, you can make the Trust the owner of the account. When you name the Trust as the beneficiary of the account, it avoids probate court and will be protected under the terms of the Trust. For example, if you have a minor child, you may have stated in your Trust that the child must turn the age of 25 before they receive any inheritance. If you don’t have a Trust, you will name the estate’s beneficiaries in your Last Will and Testament. You also have the option to not name anyone as a beneficiary. The account will become part of the estate and will be distributed according to your Will’s terms. Although it won’t avoid probate, you’ll know the account will go to those you intended to receive it. Your personal representative will be in charge of the distributions, and any changes you make to your Will in the future will apply to the account.
  • Life Insurance: Life insurance policies are different from bank and investment accounts. With life insurance policies, you can’t name the Trust as the owner of the policy. Instead, you can name it the beneficiary of the policy. This is a good option for the reasons stated previously. If you don’t want to name a Trust or don’t have a Trust, you can name specific individuals as beneficiaries. Typically, life insurance companies allow you to name alternate beneficiaries if your first choice passes away before you.
  • Retirement plans: It’s not a great idea to transfer your retirement account into your Trust. If you attempt to do this, you’ll have to liquidate your account, which will cause you to pay taxes. You also shouldn’t name your Trust as the beneficiary of your retirement account. If your spouse isn’t listed as the beneficiary, then your account will have to be liquidated, and any taxes must be paid within ten years of your passing. If you have only a small amount in your account, this may not be a big deal. You should choose your beneficiaries carefully for retirement accounts because different rules may apply to those receiving them. For example, if your surviving spouse is the beneficiary, they can treat the account as their own. Your spouse may change the name on the account into their name, or they can create a new account using the funds. The rules of any non-spouse are different. They must remove all funds from the account within ten years of your passing. They aren’t required to make distributions, but they need to withdraw the money in the 10th year.

If you want to ensure your beneficiary designations properly align with your estate plan, you should consult with an experienced estate planning attorney.

Just give us a call at (248) 613-0007 to schedule your initial consultation. 

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