When you think of handing down assets, you probably think of a last will and testament. Most people do. However, if you have a life insurance policy, retirement funds, investment accounts or any financial assets that have an option to name a beneficiary, the person who you named (probably when you first opened the account) will receive the asset when the account owner dies. Whatever is in your will won’t matter.
The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary.
Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.
Remember that beneficiary designations don’t carry over when you roll your 401(k) to a new plan or IRA.
You can name as your beneficiaries, individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to his children (your grandchildren).
Don’t leave assets to minors outright because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to the heir’s over time, after they have reached legal age or another milestone.
If your family includes any disabled individuals, you will put them in jeopardy of losing government benefits, if they are named a beneficiary. There are strict financial restrictions regarding their government benefits. Your estate planning attorney will help you to create a special needs or supplemental needs trust if you wish to leave them something, without harming their ability to receive these benefits.
Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”