Beneficiaries
00:00:05
I want to talk to you today about beneficiary designations. They seem like a mundane, unimportant, simplistic part of your estate plan, but they’re actually pretty important. So beneficiary designation is typically attached to so-called non probate assets. Those are things like retirement accounts, non-retirement investment accounts. Things like life insurance and some bank accounts and a couple of important things to understand. First of all, those beneficiary designations typically control over any conflicting will or trust.
00:00:38
What that means is when you do update, your will or trust you have to also look at your beneficiary designations to make sure they match your current intent because the will that’s updated does not necessarily control those beneficiary designations.
00:00:53
What do they typically look like? Well, a typical beneficiary designation would probably say I’m leaving everything to my spouse and then equally to my kids now the most common way. We leave things to our kids in America, and the default rule in most states is what’s called per stirpes. It’s a Latin phrase PER STIRPES per stirpes. And that just means that the default is that we leave it to our children. But if a child dies with us or before us, that share goes to that child’s then living children.
00:01:21
So, it’s a way to keep the assets in the blood or adopted family and it doesn’t typically go to in laws for example. So that’s a very typical beneficiary designation. But there are some things to be concerned about when you update a will, let’s say you’ve got some minor children, for example, you have a will that says I get everything.
00:01:42
To my spouse and then I leave everything else in a trust for my minor children. Well, the important thing to note here is that your beneficiary designation should reflect that as well. So, it should say something like the primary beneficiaries, my spouse and the secondary is the Children’s trust established in my last will and testament.
00:02:02
One other important thing to consider for these beneficiary designations is for retirement accounts. It’s really important for income tax purposes to have a person named on those beneficiary designations for non-retirement accounts like investment accounts. It’s not as important for income tax purposes. In fact, it’s not important, and I generally prefer to have no beneficiary designation on non-retirement investment accounts. And why is that?
00:02:30
Well, there’s two big reasons for that. I think it adds liquidity for the estate. So, if you have payments, you have to make or you have to fix up the house before you sell it, it provides a source of easy liquidity for the estate after a person dies that we can draw upon relatively easily. The second reason is it provides flexibility and distribution. So, if you are, if you’ve got a few kids and you’ve got a house and other cash assets. It allows us to to provide one asset like the House to one child and make up the difference with cash existing in the estate. If we didn’t have that, if we had it go automatically to the beneficiaries, to a beneficiary designation, we’ll lose that flexibility. Beneficiary designations are part of your estate plan and if you want to discuss it further, please contact the office.