Obtaining insurance, enrolling in retirement programs or setting up an IRA, usually require you to designate a beneficiary or contingent beneficiary, the person or persons entitled to inherit the asset on your death. Due to the surrounding circumstances this decision is often made in haste. But, making a beneficiary designation can have serious estate, tax and other consequences, and should be made thoughtfully.
The general rule for married persons is to name your surviving spouse as your beneficiary on your death. Typically this is what most spouses want and is often the easiest decision. Moreover, in the event of divorce or the death of the spouse/beneficiary, both traumatic events, the owner usually remembers to reconsider or change any spousal beneficiary designations.
Naming multiple beneficiaries, minors or beneficiaries that do not maintain a close contact with you can cause problems. Distant beneficiaries may be difficult or impossible to locate on your death. Minors often need a trust or guardian to accept the inheritance. Multiple beneficiaries present problems if some predecease you or cannot be found. These designations also do not remind you to reconsider or change beneficiary designations as your life and the beneficiaries’ lives change. These situations may better be handled by naming a trust as the beneficiary. Sophisticated beneficiary designations should be discussed with your estate planner, as they should be in harmony with your will, living trust or other established estate plans.
Certain beneficiary designations can also create unintended tax and other consequences, as can the creation and use of living and other trusts. Improperly designating a person with special needs may disqualify the recipient from government and other aid. Designations should be periodically reviewed, like your estate plan, as your situation and wishes for your beneficiaries and heirs may change.
At Brooks, Tarulis & Tibble, LLC we advise numerous clients regarding beneficiary designations, and the incorporation of these assets into overall estate plans and business succession plans. If we can assist you in this regard, please contact me.