Beneficiary Designations: An Important Part of a Comprehensive Estate Plan

May 19, 2015

Beneficiary designations are a very important part of the estate planning process. Many clients find a large portion of their wealth accumulated in assets that allow them to name a beneficiary who is entitled to receive the asset or proceeds of that asset upon the owner’s death.  For example, life insurance policies, IRAs, retirement accounts, investment accounts, bank accounts, and even real estate in Ohio can all be subject to a beneficiary designation.

By allowing for a direct payment or transfer to the named beneficiary on the death of the owner, beneficiary designations are a valuable probate avoidance tool.   However, in their rush to avoid probate, many people fail to realize that there are instances where having funds paid directly out to a beneficiary may not be desirable:

  • If your beneficiary is a minor or incapacitated, the financial institution may require that a guardianship be put in place to receive the funds or assets.
  • If your beneficiary is receiving government benefits (for example, a child or grandchild receiving special needs assistance), their ability to continue to receive those benefits may be jeopardized by receiving the funds or assets.
  • If you have a beneficiary that simply doesn’t handle money well or spends irresponsibly, they may blow through the funds quickly. This could be especially problematic if the beneficiary receives a tax-deferred account.

In many instances, naming a trust as a beneficiary can avoid some of the foregoing problems.  So it is important to realize that while beneficiary designations are a valuable estate planning tool, they have to be considered as part of your overall estate plan. 

It is also critical that you periodically review and, if necessary, update your beneficiary designations.  Major life events such as a birth, death, marriage, divorce, and changing employment should all be events triggering a review.  Absent any of those milestones, it’s still advisable to review your beneficiary designations, along with your other estate planning documents, every couple of years to make sure that upon your passing the assets you’ve worked hard to accumulate during life pass on to those you wish to benefit after you’re gone.


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