Guest Post: Designated Beneficiaries and Your Estate Plan

Designated Beneficiaries and Your Estate Plan

Guest post courtesy of Steven D. Jaeger, Esq. of The Jaeger Firm, LLC

Many types of property and investments pass outside of probate and allow you to designate who will receive them after your death. It is important that these designations are kept up to date and are consistent with the rest of your estate plan. 

When you open up an investment account or retirement plan or buy life insurance, the company encourages you to name beneficiaries who will inherit the property on your death. The choice you made at the time may not have taken your estate plan into consideration. To review your beneficiaries, get a copy of all of your beneficiary designation forms. Check to make sure that your beneficiaries are consistent with the rest of your estate plan or, if they are different, that the difference is intentional. If you made these designations online, print a copy of the page so that you also have a paper record. Once you have collected all of these forms, put them in a folder with your other estate-planning documents so that you and your heirs can quickly and easily find them in the future. 

In determining how to make your beneficiary designations, the following are the considerations for each type of account:

• Bank and investment accounts. If you have a revocable trust as part of your estate plan, you can make the trust the owner of all of your bank and investment accounts. This way you avoid the need to name anyone as beneficiary and you still avoid probate. Then, all of the protections provided in the trust--for instance, that children do not receive their inheritance until a certain age or provisions for who receives the funds if a beneficiary predeceases you--will apply to the accounts. If you’re not using a revocable trust, simply name those who will receive your estate under the terms of your will. Or you have the option to name no one. If you do not designate a beneficiary, the account will pass according to the terms of your will and, while you won’t avoid probate, you’ll make sure that the people you want will receive the assets, that your personal representative will be in charge, and that any changes you make in the future--such as disinheriting your wayward nephew-- will apply to the accounts. 
• Life insurance. Unlike bank and investment accounts, the ownership of many life insurance policies--especially those that come as an employment benefit--cannot be transferred to your revocable trust. And there is really no benefit to doing so in any case (although there might be some tax and long-term care planning reasons to transfer property to irrevocable trusts). Instead, the beneficiary designation is the most important decision. If you have a revocable trust, you may name it as the beneficiary for the reasons mentioned above. Or you can name particular individuals. The beneficiary designation form will permit you to name alternates in the event that the first person or people you name predecease you. 
• Retirement plans. First, don’t transfer your retirement plans to your revocable trust. The only way to do so is to liquidate the plan first, which would be a taxable event. Second, don’t name your revocable trust as a beneficiary of your retirement funds without consulting your lawyer. In most instances, if your spouse is not the beneficiary, the retirement plan will have to be liquidated and the taxes paid within 10 years of your death. On the other hand, if you have a relatively small amount of funds in retirement accounts, this might not be a big problem. It is much more important with retirement plans than with life insurance or other investments that you designate a beneficiary, because there are different rules for different beneficiaries. If your spouse inherits your IRA, your spouse can treat the IRA as his or her own. Your spouse can either put the IRA in his or her name or roll it over into a new IRA. The rules for a child or grandchild (or other non-spouse) who inherits an IRA are somewhat different than those for a spouse. The beneficiary must withdraw all of the assets in the inherited account within 10 years. There are no required distributions during those 10 years, but it must all be distributed by the 10th year.

To make sure that your beneficiary designations align with your estate plan and are as beneficial to your intended heirs as possible, talk to your attorney. 

Steven D. Jaeger, Esq., The Jaeger Firm, LLC

Steven D. Jaeger is a founding member of The Jaeger Firm, PLLC, located in Erlanger, Kentucky. Through unique personal circumstances, Steve understands first-hand the need to plan for long-term care and estate issues. Diagnosed with several life-altering auto-immune disorders, he’s dedicated his life to helping others understand the need for long-term planning, the importance of having a plan in place for one’s family, and the options available to people who are faced with life’s unexpected events. Steve is passionate about helping families and individuals create a plan to protect themselves, their families, and the assets they have worked their entire life to accumulate, while also preserving legacies and dignity during the aging process. 

X² Wealth Planning and Juncture Wealth Strategies are not affiliated with The Jaeger Firm, LLC. All information provided by the guest blogger has been provided as is and has not been reviewed or edited for accuracy.

(Cover Photo by Johnny Cohen on Unsplash)