5 Things You Need to Know Before You Name Beneficiaries

Once you have chosen the people you want to receive any of your assets — either from a will, a trust, a life insurance policy or a retirement or bank account — the way you designate how they will inherit should be a key consideration.

Here are five things you need to know before you name your beneficiaries:

  1. Beneficiaries of a will have to wait. Any assets you bequeath to a beneficiary via a traditional will have to wait for their money or property until the probate process has been completed.  In some cases, this can take many months or even years — and if the estate is complex, the legal fees can deplete that inheritance.  If you want to make it easier for your beneficiaries, consider creating a Revocable Living Trust as part of your estate plan.  A trust does not go through probate; upon your death, the successor trustee distributes the assets to your beneficiaries.
  2. Retirement plan and life insurance policy benefits are paid directly. The assets in a life insurance policy or retirement plan are not subject to probate and pass to your beneficiaries directly.  Your beneficiaries will receive these assets after providing the account owner’s proof of death and a proof of identity for the beneficiary.  Naming contingent beneficiaries is important; if the primary beneficiary predeceases you, the assets will likely go into your estate and will be subject to taxes.
  3. Minor children should not inherit directly. Naming a minor child as the beneficiary of a life insurance policy or other assets is never recommended.  If you fail to name a guardian, the state could take over the assets and name someone to manage those assets on the child’s behalf.  This can result in additional expenses that would eat into that inheritance, and those assets may not be managed according to your wishes.  Instead, the wise move is to create a trust to hold these assets for the benefit of a minor child and name a successor trustee to oversee the management and distribution of the funds in a way that complies with your wishes.
  4. Give careful consideration to naming retirement plan beneficiaries. Studies have shown that most beneficiaries of a retirement plan take the cash immediately, which may not be your intention.  Naming your estate as beneficiary of a retirement plan is also not recommended since doing so would not allow your spouse or younger beneficiary to take advantage of an IRA rollover or the “stretch” IRA option that could allow your IRA to grow tax-deferred over many years.
  5. If there are multiple beneficiaries, name them. If there are multiple beneficiaries for an insurance policy or retirement plan, don’t make the mistake of just naming one person — say, the oldest child — and assuming they will make the proper distributions.   Instead, designate a separate share for each beneficiary.  If one of your beneficiaries has special needs, create a trust for their share so any inherited assets don’t disqualify them from important government benefits.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation.

As a Personal Family Lawyer®, I can further advise you on all your options and make things as easy as possible for your family during a Family Wealth Planning Session.  If you would like to have a talk about estate planning for your family, call our office today to schedule a time for us to sit down and talk.

To your family’s health, wealth and happiness!

David Feakes

P.S.  Want to get started on the most important planning you’ll ever do for your family?  Give our office a call at (978) 263-6900 to get started.  You’ll be so glad you did.

David Feakes is the owner of The Parents Estate Planning Law Firm, PC – a law firm for families in the Acton, Massachusetts area.  David helps parents protect the people they love the most.  If you would like to receive David’s exclusive, free report, “Six Major Mistakes To Avoid When Choosing An Estate Planning Attorney,”  you can get it right here.

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At The Parents Estate Planning Law Firm, we answer your questions at your convenience; we stay in frequent communication; and we meet to discuss changes in life circumstances and in the law to ensure that your assets are protected.

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