Make Sure Your Beneficiary Designations Match Your Estate Plan – Law Office of Sean D. Ethington

Many types of property and investments pass outside of probate and allow you to designate who will receive them after your death. It is important that these designations are kept up to date and are consistent with the rest of your estate plan.
When you open up an investment account or retirement plan or buy life insurance, the company encourages you to name beneficiaries who will inherit the property on your death. The choice you made at the time may not have taken your estate plan into consideration. To review your beneficiaries, get a copy of all of your beneficiary designation forms. Check to make sure that your beneficiaries are consistent with the rest of your estate plan or, if they are different, that the difference is intentional.
In determining how to make your beneficiary designations, the following are the considerations for each type of account:
Bank and Investment Accounts. If you have a revocable trust as part of your estate plan, you can make the trust the owner of all of your bank and investment accounts. This way you avoid the need to name anyone as beneficiary and you still avoid probate. This will also ensure that all of the protections provided in the trust–for instance, that children do not receive their inheritance until a certain age or provisions for who receives the funds if a beneficiary predeceases you–will apply to the accounts. If you’re not using a revocable trust, simply name those who will receive your estate under the terms of your will.
Life insurance. Unlike bank and investment accounts, the ownership of many life insurance policies (especially those that come as an employment benefit) cannot be transferred to your revocable trust. And there is really no benefit to doing so in any case (although there might be some tax and long-term care planning reasons to transfer property to irrevocable trusts). Instead, the beneficiary designation is the most important decision. If you have a revocable trust, you may name it as the beneficiary for the reasons mentioned above. Alternatively, you can name specific individuals. The beneficiary designation form will permit you to name alternates in the event that the first person or people you name predecease you.
Retirement plans. First, don’t transfer ownership of retirement plans to your revocable trust. The only way to do so is to liquidate the plan first, which would be a taxable event. Second, don’t name your revocable trust as a beneficiary of your retirement funds without consulting your attorney. In most instances, if your spouse is not the beneficiary, the retirement plan will have to be liquidated and the taxes paid within 10 years of your death. On the other hand, if your spouse inherits your IRA, in most circumstances your spouse can treat the IRA as his or her own and spread the distributions out accordingly. It is important to discuss potential beneficiary designations with you tax advisor or attorney.
For more information please contact the Law Office of Sean D. Ethington at (661)295-4604 or visit our website at www.ElderLawSite.com.