Estate Planning Tips: Naming a Beneficiary in an Estate Plan

Estate Planning Tips: Naming a Beneficiary in an Estate Plan
Velasco law May 24 2018

If you are unsure how to name a beneficiary, this is a great blog for you. Naming a beneficiary is best done with the law in mind. If you have any questions make sure to contact us HERE

Estate plans are very effective ways to ensure that assets are transferred to the next generation, but it is important that they are used properly. It is essential to make sure that your estate plan sets up beneficiaries, and that those beneficiaries are kept current. In addition, the assets need to be properly titled in the plan, keeping up with any changes over your lifetime.

Beneficiaries are a key component of estate plans, and the magnitude of the benefits they will receive and whether or not they will receive them can change over time. A major life change—a marriage, divorce, birth, or death—can cause a shift in beneficiary designations. For example, one’s spouse may need to be added or removed as a beneficiary, depending on circumstances. These are important changes that need to be reflected in your estate plan. As a general rule, estate plans should be reviewed on a regular basis, every three years or so, in order to make any necessary changes.

Many assets that are transferred into certain accounts over time (such as retirement, investment, or other bank accounts), often specify beneficiaries. Those beneficiaries need to be reviewed and work in concert with your existing estate plan.

It is important to manage how assets will be transferred upon death. Many beneficiaries will have to go through probate upon the death of an individual. In addition, probate may step in when estate plans do not name a beneficiary. Probate is can be a long, public process that can cost additional money and time. Many titling options transfer through probate (such as “estates” or “individual name with no designated beneficiary”), while others (such as “joint tenancy” or “payable on death”) do not. It would be wise to look into these different options.

Many estate planning experts warn against a few common mistakes made with beneficiary designations. One such mistake is naming your estate as a beneficiary of your retirement plan. Doing this would result in the estate going through probate and having certain limitations for distribution. The latter will only occur as a lump sum or within 5 years of the decedent’s death and both options are taxable. Experts recommend distributions go through spousal and non-spousal beneficiaries, who may have less of a tax burden.

Another mistake experts warn against is having outdated beneficiaries in your estate plan. It is crucial to keep track of your beneficiaries and update them when need be. For example, if a divorce occurs, and the beneficiaries of an estate plan are not updated, your ex-spouse could receive your assets—against your wishes. If a new child arrives, outside of your prior marriage, you would most likely want to add them to your plan, especially if your other children have already been named as beneficiaries.

On the subject of children as estate plan beneficiaries, estate plan experts advocate for caution when naming them (especially if they are minors). Children of estate plan decedents may be eligible to receive assets as early as 18 or 21 (depending on the state). Some parents may not want their children to have access to large sums of money at that age. Experts advise creating a living or revocable trust and/or having a guardian handle those assets until your children are of an age to handle assets on their own.

Another mistake experts warn against is naming a special needs individual (who currently receives government benefits) as a direct beneficiary of your estate plan. This could jeopardize their ability to receive much-needed government benefits, so it is important to work with an attorney who specializes in this area to create a customized estate plan and avoid this problem.

Experts also warn against naming a child as a co-owner of a bank or investment account or naming separate children as beneficiaries for separate accounts. This could also lead to troubles down the line in the distribution of assets.

Velasco Law Group deals with these concerns on a daily basis. We can help you customize your estate plan according to your wishes. We have offices in Long Beach, Downey, and Irvine. Please contact us today for a free consultation. Phone 562-432-5541  or write to us HERE

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