What Should I Know about Beneficiaries?

Whenever you open a financial account, you?re almost always asked to name a beneficiary. Simply stated, a beneficiary of the account is someone who is entitled to the benefits of the account, typically, on the death of the account holder. If you?ve purchased life insurance, for example, you name a beneficiary who receives the benefits of the policy when you pass.

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Beneficiaries
Estate planning is a critical part of the retirement planning process. As we kick off the new year, this is a perfect time to ensure that your plan is up to date.
 
Things change over time. That includes our lives, our family, and even the laws that apply to estates. This means the wills, trusts, and other estate documents that protect our families and secure our legacies may need to change, too.
 
With that in mind, we’re thrilled to have Keith McManus, attorney at McManus Estate Planning, back on the podcast. In our conversation, we discussed the downside of not reviewing and updating your estate plan, different ways to protect your biggest asset such as the family home, and the pros and cons of life estates and much more.
 
In this podcast discussion, you’ll learn: 
  • Reasons why a “set it and forget it” strategy can put your estate at risk.
  • How to take advantage of incredible opportunities before the Tax Cuts and Jobs Act sunsets in 2025.
  • Why you may want to prepare estate plans to protect young adult children, even if they haven’t accumulated much wealth yet.
  • What it means to create a life estate–and the potential risks and benefits of this approach to retirement.
  • Why there’s no such thing as a cure-all trust–and how this makes estate planning more important than ever.
  • Why you never want to rely on a will as the backbone of your estate plan.

Beneficiaries are essentially the people or the entity that receive beneficial enjoyment of an asset.? When you open most financial accounts, like a bank account, life insurance, a brokerage account, or a retirement account (e.g., a 401(k) or IRA), the institution will ask you to name a beneficiary. You also establish beneficiaries, when you draft a will or other legal contracts that require you to specify someone to benefit in your stead. With some trusts, it may even be you and your spouse, while you?re alive.? Also, be sure not to overlook the use of appointing Trusts as beneficiary of certain accounts and assets.

Bankrate?s article entitled ?What is a beneficiary?? explains that the beneficiary is usually a person, but it could be any number of individuals, as well as other entities like a trustee of your trust, your estate, or a charity or other such organization.

When you?re opening an account, many people forget to make the selection, because it?s not needed as part of the process to create many financial accounts. However, making appropriate selections allows you to direct your assets as you want; avoid conflict; and reduce legal issues. Failing to name a beneficiary may create big headaches in the future, possibly for those who have to deal with sorting out your affairs.

There are two types to select. A primary beneficiary is first in line to receive any distributions from your assets. You can disburse your assets to as many primary beneficiaries as you want. You can also apportion your assets as you like, with a certain percentage of your account to each primary beneficiary. A contingent beneficiary receives a benefit, if one or more of the primary beneficiaries is unable to collect, such as if they?ve died.? Again, examine the advantages of selecting Trusts.

After you?ve named your beneficiaries, it?s important to review the designations regularly. Major life events (death, divorce, birth) may modify who you want to be your beneficiary. You should also make certain that any language in your will doesn?t conflict with designations.? Such designations generally take precedence over your will. Check with an elder law or experienced estate planning attorney.

Finally, it is important to understand that a minor (e.g., typically under age 18 in most states) usually can?t hold property, so you?ll need to set up a structure that ensures the child receives the assets. One way to do this, is to have a guardian that holds assets in custody for the minor. You may also be able to use a trust with the same result but with an added benefit: in a trust you can instruct how the assets are used, only when they reach a certain age or other event or purpose.

Reference: Bankrate (July 1, 2020) ?What is a beneficiary??

 

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