What to Consider When Deciding on Beneficiaries

Careful thought and planning is needed before naming beneficiaries to your accounts. Like choosing an executor for your estate, the choices of beneficiaries can have far-reaching consequences.

Many of your financial assets allow you to name beneficiaries, including life insurance policies, pension plan accounts, annuities and IRAs. However, before you automatically write down your children or nieces or nephews, consider the tax consequences –both income tax and estate tax—that your decision may have on them.

The Cape May County Herald, in “Naming Beneficiaries: What You Need to Know,” advises that it’s important to know that beneficiary designations supersede a will. Designating your beneficiaries is critical. Make sure to talk with an experienced estate planning attorney to be certain that your beneficiary arrangements are consistent with other estate planning documents.

There are several different financial products and investments that allow you to name a beneficiary, but each of them may have some subtle nuances that can be hard to flesh out and understand.

Remember that designating a beneficiary is also a legal arrangement. A beneficiary designation requires that you include certain language to be certain that your wishes are accurately recorded and carried out. That is why it is important to consult with a qualified estate planning attorney when deciding who to name as beneficiaries and how to properly document your wishes. In addition to the specific person you’ll name as your beneficiary, you should consider the following:

• The age of the beneficiary, because most policies and plans won’t directly transfer assets to minors, until a court approves a trustee or guardian;
• The ability of a beneficiary to manage assets, because if he or she has trouble with finances, a trust in the person’s name may be a better option than a direct transfer; and
• When looking at your pension plan, the law requires a spouse to be the primary beneficiary of the account, unless he or she waives this designation in writing.

Get Professional Help. Beneficiary designations supersede your will, so it’s important to treat them with the same consideration that you do any other valuable assets. The same estate planning attorney who helps you with identifying your financial and estate planning goals and preparing legal documents will be able to help you to make smart decisions about beneficiaries.

Reference: Cape May County (NJ) Herald (March 17, 2017) “Naming Beneficiaries: What You Need to Know”