5 Things to Know Before Naming Beneficiaries

Once you have chosen the people you want to receive any of your assets -- either from a will, a trust, a life insurance policy or a retirement or bank account -- the way you designate how they will inherit should be a key consideration.


Here are five things you need to know before you name your beneficiaries:


1. Beneficiaries of a will have to wait


Any assets you bequeath to a beneficiary via a traditional will have to wait for their money or property until the probate process has been completed. In some cases, this can take many months or even years -- and if the estate is complex, the legal fees can deplete that inheritance. If you want to make it easier for your beneficiaries, consider creating a Revocable Living Trust as part of your estate plan. A trust does not go through probate; upon your death, the successor trustee distributes the assets to your beneficiaries.


2. Retirement plan and life insurance policy benefits are paid directly


The assets in a life insurance policy or retirement plan are not subject to probate and pass to your beneficiaries directly. Your beneficiaries will receive these assets after providing the account owner’s proof of death and a proof of identity for the beneficiary. Naming contingent beneficiaries is important; if the primary beneficiary predeceases you, the assets will likely go into your estate and will be subject to taxes.


3. Minor children should not inherit directly


Naming a minor child as the beneficiary of a life insurance policy or other assets is never recommended. If you fail to name a guardian, the state could take over the assets and name someone to manage those assets on the child’s behalf. This can result in additional expenses that would eat into that inheritance, and those assets may not be managed according to your wishes. Instead, the wise move is to create a trust to hold these assets for the benefit of a minor child and name a successor trustee to oversee the management and distribution of the funds in a way that complies with your wishes.


4. Give careful consideration to naming retirement plan beneficiaries


Studies have shown that most beneficiaries of a retirement plan take the cash immediately, which may not be your intention. Naming your estate as beneficiary of a retirement plan is also not recommended since doing so would not allow your spouse or younger beneficiary to take advantage of an IRA rollover or the “stretch” IRA option that could allow your IRA to grow tax-deferred over many years.


5. If there are multiple beneficiaries, name them


If there are multiple beneficiaries for an insurance policy or retirement plan, don’t make the mistake of just naming one person -- say, the oldest child -- and assuming they will make the proper distributions. Instead, designate a separate share for each beneficiary. If one of your beneficiaries has special needs, create a trust for their share so any inherited assets don’t disqualify them from important government benefits.


This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by contacting our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.


DISCLAIMER: All information available at this website are for informational purposes only and is not legal advice. You should contact an attorney directly regarding your specific situation. Use of and access to this website or any of the email links contained within the site do not create an attorney-client relationship between the Law Office of Keoni Souza, LLC and any users or any other party.

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All information available on this website is for informational purposes only and is not legal advice. You should contact an attorney directly regarding your specific situation. The use of and access to this website or the transmission of information via email or through this website does not create an attorney-client relationship between the Law Office of Keoni Souza, LLC and any users or any other party. Transmission of information via email or through this website may not be secure, therefore confidentiality cannot be assumed.  By using this website or transmitting information via email or this website, the user agrees to this information being collected, stored, or transmitted to a third-party.

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