You may or may not have heard of “beneficiary designations,” but it is an important term to know and understand when it comes to estate planning. Through the process of estate planning, the main goal is to put certain key pieces in place like your will, health care power of attorney, financial power of attorney, potentially a trust, and other documents. However another necessary part of estate planning is making sure your assets are beneficiary designated correctly and in line with your newly formed or already established estate plan.

 

What is a “beneficiary designation”?

Let’s break it down. A beneficiary when used in the context of estate planning is someone or something that benefits from or receives a certain asset, estate, or trust. The designation of a beneficiary simply means you are selecting, choosing, or naming an individual to receive all or part of your assets.

Why is this not accomplished through the estate planning documents?

While you name certain individuals or entities in your documents (Will or Trust) to receive your estate, there are other assets you may have that are not controlled by the Will or Trust (see our previous post Your Will Does NOT Control Everything). Those assets may include: retirement accounts, bank accounts, life insurance, pension plans, annuities, and employee benefits. If you have any such assets then you should take the time to sit down and review them to ensure they still line up with your estate plan and current wishes.

What are the next steps?

We recommend the following steps to ensure your beneficiary designations are properly updated:

  1. Find out which accounts you have that are beneficiary designated. Contact your financial institutions, ask your financial advisor or if you chose to work with us, we will handle coordinating with your financial advisors. Before you do any of this, it may be helpful to perform a simple Google search on common beneficiary designated accounts.
  1. Once those accounts are located, determine who or what is the designated beneficiary.
  1. Do those beneficiaries still match up with your current wishes?
    • If so, great! However you will still need to think about some different aspects. Make sure a minor child is not (I repeat, NOT) named as beneficiary and that there are no tax implications for naming or not naming certain individuals on accounts (Ex.: Spousal IRA accounts). You should also make sure contingent beneficiaries are listed in the event your primary beneficiary is not there upon your passing.
    • If not, that’s ok, you will just need to contact you advisor and update the beneficiary designations.
  1. Make any desired updates and once you are satisfied with your beneficiary designations, make sure they are properly updated to work with your estate plan. Depending on who or what you wish to receive the asset will determine the language needed to properly designate such accounts.

It is important to get this right if you want the asset to be distributed according to your wishes! It is also important to consider tax implications and efficiency when determining whether an individual, an estate, or a trust, should be selected as beneficiary for certain assets. Each person’s estate plan is different, so the language needed will be specifically tailored to your wishes and what is best for your estate and the loved ones benefiting from it.