Law Office Report - Spring 2008
Understanding Beneficiary Designations
Attorney Amy J. Eddy
What is a Beneficiary Designation?
A beneficiary designation is a type of substitute for an individual’s Last Will and Testament. It allows you to transfer certain assets to another individual, group of individuals or entities. Often the beneficiary designation allows the asset to pass to the named beneficiary without going through probate.
Most assets can be transferred via beneficiary designation, including the proceeds of a life insurance policy, retirement assets, bank accounts, real estate and investments. If you are single, you can choose anyone you wish as the beneficiary. If you are married, you may be limited in your choice of beneficiary, particularly with regard to marital assets. You can also name a charity, your estate, or a trust as a beneficiary.
What language should be used on the Beneficiary Designation?
Another adult or group of adults as beneficiary:
Many individuals name their spouse as primary beneficiary and their child or children as contingent (or alternate) beneficiaries. As long as your spouse consents, you can name anyone you wish as your beneficiary. If you name more than one person, your beneficiaries will receive equal shares unless you specify other percentages or dollar amounts.Charity as beneficiary:
When naming a charitable organization as beneficiary, be sure you have the correct legal name and location of the entity you wish to receive the funds. It is often beneficial to speak with representatives of the organization about how the funds will be used to be sure the plan meets with your intentions. Your attorney, accountant and financial advisor can also help you plan for the best use of charitable giving to create the best tax savings from your beneficiary designations.Trust as beneficiary:
Naming a trust is particularly useful for minor children or disabled individuals. If you have established a trust that directs money be held for minor children or other beneficiaries, name the trust as the beneficiary, not the children themselves.Estate as beneficiary:
In many cases, you should avoid naming your estate as beneficiary. If you do, the money will go through probate before being distributed.
How does the Beneficiary Designation interact with an individual’s Will?
A beneficiary designation is a Will substitute. As long as the beneficiary designation is valid, the beneficiary designation controls the disposition of the asset, not the Will. Do not assume that if you have set up a trust in your Will for your children, you can name the children as beneficiaries on a particular asset and the funds will go into the trust because of the language in the Will. In order for the funds to be paid to the children’s trust as set forth in the Will, the trust must be named as beneficiary, not the children.
It is important to consult with the professionals who are familiar with both your financial situation and your estate planning, so that they can advise you as to the appropriate language to use for your beneficiary designations. Your beneficiary designations will not necessarily eliminate the need for a Will or other estate planning documents. Your attorney can advise you as to the language in your beneficiary designations that will coordinate with your other estate planning.