When you do your estate planning, it’s important to also consider your beneficiary designations for your assets. Assets like annuities, life insurance, IRAs, and employer-sponsored retirement plans like 401(k)s and 403(b)s, let you name designated beneficiaries—the people who will receive the asset when you pass away. You fill out a form provided by the financial organization where the asset is held, and when you pass away, the asset is automatically distributed to the beneficiaries you named on the form. This process avoids the long, expensive probate process.
What You Should Know
Beneficiary designations actually take precedence over any other instructions you provide in a will or trust.
For example, if you leave a retirement account to your son in your will, but on the designation of beneficiary form for that retirement account you indicated your brother, your brother will receive those funds.
Make sure you designate primary and secondary beneficiaries.
- Primary beneficiaries are your first choice for a beneficiary. In some cases, you can have multiple primary beneficiaries. For example, on the same account you might choose to leave the asset to all three of your siblings equally (33.3% to each).
- Secondary beneficiaries (also known as contingent beneficiaries) are backup beneficiaries. So, if there are no living primary beneficiaries when you pass away, a contingent beneficiary claims the asset.
Review your beneficiary designations every few years.
As time goes by, your life changes. There can be life events like births, deaths, and divorces in your family. Review these designations to make sure your assets will still be distributed just the way you want.
Don’t Let Mistakes Like These Happen to You
- Tom put his wife on designation of beneficiary forms for his life insurance and IRA. The couple divorced years later, but Tom didn’t change those documents. When he passed away, his ex-wife received his life insurance and IRA assets even though his will indicated that all his assets be given to his son.
- Anne opened an investment account, but never filled out the designation of beneficiary form. When she died, that asset had to go through probate, taking many months, subjecting those funds to the creditors of Anne’s estate, and costing the estate a good amount of fees.
- Ben really wanted to avoid the cost and time of probate when he created his estate plan, so he chose a revocable trust. He diligently transferred assets into the trust, and he felt confident his assets would avoid probate. His son was the designated beneficiary on Ben’s 409(k). However, his son died in 2007 and then Ben passed away in 2017. Since there was no secondary beneficiary on his 401(k), that asset had to go through probate.
Beneficiary designations are an important component of your estate plan. As an experienced Massachusetts estate planning attorney, I’ll discuss those with you when we create your estate plan. Contact us today for a free consultation to discuss estate planning strategies that will work best for your goals and your unique situation.
