According to Wealth Consul, over a third of Americans have experienced or witnessed familial conflict when someone dies without an estate plan. While most people believe having an estate plan is important, only a third have a plan in place, per Caring.com’s 2023 Wills Survey.
While most adults in the United States think all they need for an estate plan is a will, a comprehensive and effective estate plan involves more than simply making a will.
A crucial yet often overlooked component of estate planning is reviewing assets, such as 401(k)s, pensions, and savings accounts, and ensuring you have listed a beneficiary for each of these.
Avoid Probate
Designating beneficiaries often allows your assets to go directly to your loved ones without going through probate. In probate, the court will have to oversee the distribution of assets in an estate.
Avoiding probate by naming beneficiaries can help your loved ones in several ways.
- It saves money. Costs associated with the probate process can consume up to 10 percent of an estate, per Legal Zoom.
- It saves time. The probate process can also be time-consuming in certain states, taking months to years to complete.
- Naming beneficiaries helps ensure your wishes are carried out. Even if you have a will, individuals might contest it, challenging its validity.
Selecting recipients for individual assets is essential because if you do not designate beneficiaries for your assets, they become part of your estate and are subject to probate. In some cases, the recipients of your assets as determined by the probate court may differ from your wishes.
Reviewing your assets and ensuring that your loved ones are listed as beneficiaries gives an extra layer of protection and ensures your wishes will be satisfied.
Designate Beneficiaries for These Important Assets
As part of creating your estate plan, you should assess your assets and make sure you have listed beneficiaries and that your selections are up to date.
If you have any of the following, check to ensure you have the person or persons you want to receive the assets listed as beneficiaries.
- Retirement accounts – In addition to traditional IRAs and Roth IRAs, there are other types of IRAs, such as SEP IRAs and SIMPLE IRAs. Reviewing the beneficiary designations on all types of retirement accounts is essential.
- Annuities – Annuities provide regular payments to individuals over time, typically as a source of retirement income. Most plans allow you to select one or multiple beneficiaries.
- Pension Plans – If you pass away before retirement, some pension plans provide lump-sum payments to named surviving loved ones.
- Bank accounts – Pay-on-death or transfer-on-death bank accounts allow you to list beneficiaries who assume ownership of your account after you pass away. This is different from a joint account, where you and another person both own the assets. In a pay-on-death account, your beneficiary takes ownership after you pass. You can add and change beneficiaries directly through your financial institution.
- Investment accounts – Similar to bank accounts, investment accounts can be transferred to a recipient upon the owner’s death.
- Health savings accounts – You can obtain the necessary form to transfer your health savings account by contacting your HSA provider or visiting their website.
- Life insurance policies – Those with life insurance policies typically select who will receive the payment when they establish their policy. However, policyholders should remember to review and update their plans when circumstances change, such as after a divorce or death.
- House – When you create a transfer-on-death deed, you can transfer your house upon your death and bypass probate. For older adults, this can be a safer option than adding someone to the deed, as it preserves their full ownership of the property until death. However, before recording a transfer-on-death deed, you should contact an attorney for legal advice as rules and regulations vary between states and sometimes a deed is not the best way to accomplish the goal of preserving your home for your loved ones.
- Car – Certain states allow people to name a transfer-on-death beneficiary for their vehicles.
- Business Interests – If you own a business, be sure to review partnership agreements, shareholder agreements, or operating agreements for transfer provisions.
- Digital Assets – Some online platforms allow you to assign someone to manage your digital accounts after your death. These include but are not limited to Facebook, Twitter, and Instagram.
Multiple Beneficiaries and Successors
In many cases, you may name more than one beneficiary. For instance, a person with two children might want to leave an asset to them both. Depending on the type of asset, you can state how much of the asset each child receives.
It is also vital to consider successor beneficiaries. A successor obtains the asset if the original recipient passes away. For instance, you could list a beneficiary and a successor on a pay-on-death account. Oftentimes a spouse is the primary beneficiary, but the successor beneficiaries are the children.
Changing Beneficiaries
If during your lifetime your listed beneficiary predeceases you or if you have a major life event such as a marriage or divorce, it is a good idea to contact the companies holding your assets so that you can update your beneficiaries on file. This will not only ensure that your beneficiary designation(s) are up-to-date but will also help ease the burden on your beneficiaries when it comes time for them to claim the asset(s).
When you designate a beneficiary on an asset such as an account, they assume ownership only after you die. Generally, they will not have an ownership interest while you are alive and can handle your own affairs.
Estate Planning Attorney
Organizing your assets to plan for the future can be challenging and complex. With the help of an estate planning attorney, you can develop a solid plan to distribute your assets to your loved ones according to your wishes. An estate planning attorney near you can help you review your assets and advise you on the most effective method of preserving your assets.
In A Nutshell . .
If you’re feeling overwhelmed by all of this information, you are not alone. Reach out to connect and discover your next best step. If you’re thinking, “yes I should get my wishes in order” but not sure of a professional to help, let’s connect so you will have peace of mind and a great choice for your area.
Why You Should Designate Beneficiaries
