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Naming Your Beneficiaries

| May 21, 2018
Estate Planning

Naming the beneficiaries of your IRA, life insurance policy, annuity or any other contract property may not be as simple as choosing the ones you love to inherit the assets and writing those names down. Let me offer you a scenario:

Suppose you name your two daughters as the beneficiaries of your IRA now that your wife has passed. Suddenly, you and your oldest daughter are killed in a car wreck on the way home from your doctor’s appointment. Because you had just provided the names of your two daughters as your designated beneficiaries, your youngest daughter receives 100% of the assets. This might have been okay, except for the fact that your oldest daughter had 3 children, who you would have wanted to receive her portion of the estate.

Or a worst case scenario: What if the new spouse of your widowed son-n-law received your assets?

Did you know that you could have avoided this by simply adding a minute, legal term to your beneficiary designation?

There are several legal terms you can add to your beneficiary designation, or other designated and non-designated beneficiaries you can name to pass your estate to future generations. Just to name a few…

  • share and share alike or with rights of survivorship
  • per stirpes
  • share and share alike per stirpes
  • per capita
  • estate of “….”
  • if adults, otherwise to “Jane Doe” as custodian for “John Doe” under the uniform Transfers to Minors Act as enacted in this State.

Keep in mind that each type of beneficiary designation has its own advantages, disadvantages and tax implications. If you own some type of contract property, such as a life insurance policy or IRA, I encourage you to discuss your legacy plan with your advisor and ensure your beneficiary designations comply with your wishes.

Here are just a few other checklist items you should consider in regard to your beneficiary designations:

  • Do you have both primary and contingent beneficiaries? If not, is there a reason?
  • Do you have a confirmation of receipt of your beneficiary designations? Documents can get lost in transit and it is important to keep your own records and let your family members know where these records are kept.
  • Review your beneficiary designations on an annual basis. Life changes- you may have a new birth in the family, death or divorce.
  • Know what the default provisions are that govern your contract property. For example, what would happen if your beneficiary predeceases you and you don’t make the necessary changes before you pass?