Estate Planning: the Importance of Beneficiary Designations

If you have life insurance, a 401(k), or a bank account, you have almost certainly already completed beneficiary designations. Chances are you did not give it much thought at the time. You might not even remember who you named as a beneficiary, but if something happens to you those designations will control how the account or other asset is distributed upon your death even if you have an estate plan in place. For this reason, coordinating your beneficiary designations with your estate plan is just as important as signing your will.

"coordinating your beneficiary designations with your estate plan is just as important as signing your will."

Assets are transferred at your death in four general ways:

  1. Joint ownership - assets that are owned jointly with another person with right of survivorship will automatically pass to the surviving owner upon your death.
  2. Beneficiary designations - assets that have a pay-on-death beneficiary will automatically pass to the person named as beneficiary upon your death.
  3. Trusts - if you have established a trust and funded the trust, the assets in the trust will pass according to the terms of your trust upon your death.
  4. Probate - a will basically controls the disposition of your assets if there is no joint owner, no named beneficiary, and the asset is in a trust. Like a trust, the assets subject to your will pass according to the terms of your will upon your death. If you have no will, the same assets then pass according to the laws of intestacy as set forth in Minnesota state law.

If your trust or will distributes your assets in a different way than the beneficiary designation would, it is time to update your beneficiary designation to reflect your wishes.

Often, couples want to leave everything to their spouse. In this scenario it can make sense to name the spouse as a primary beneficiary of the account, though there may be estate tax planning reasons to modify this. You should also think through who will inherit the asset when both you and your spouse are deceased. This is the secondary or contingent beneficiary. You might name your children as contingent beneficiary of your account, but you must be comfortable with your children receiving the asset outright upon your death. An alternative would be to name a testamentary trust or revocable trust as the contingent beneficiary so that the asset will pass according to your estate plan.

Generally, a testamentary trust and a revocable trust can both be used to hold an asset for your children until they are old enough to maturely handle assets. This can be a good strategy for parents with minor or young children. Trusts can also anticipate how to distribute the asset if your children do not survive you or do not reach the age of maturity. A testamentary trust is a trust contained within your will whereas a revocable trust is a standalone document that can take the place of a will.

An experienced estate planning attorney at Ward & Oehler will not only prepare your estate planning documents but also spend time reviewing your assets and making beneficiary designation recommendations to ensure your estate passes according to your wishes.

For more information or to schedule an appointment, call (507) 288-5567 or send us an email.

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Categories: Estate Planning