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Trusts & Estates

Choosing Beneficiaries

Determining who gets what and when

While your will, and possibly a revocable living trust, are important parts of your estate plan, there are several other ways that your wealth could be transferred after your death. A coordinated plan is critical in making sure your wishes are understood and carried out.

Where there’s a will

When it comes to estate planning, you want to make sure you've indicated how – and to whom – you wish to leave all your assets. The goal is to make things as easy as you can on your loved ones by having at least some, if not all, of your assets pass outside of the probate process.

Probate, the official proving of a will

The average length (and cost) of probate and estate settlement varies from state to state, from a minimum of a few months to more than a year. Several issues can affect how long this process might take.

  • Multiple beneficiaries
  • Beneficiaries live out of state
  • Certain family members have been "cut out" of the will
  • The will is being contested
  • Creditors are filing claims against the estate
  • The estate is taxable
  • The IRS needs time to approve the estate tax return
  • The assets are complex

Beneficiary basics

A beneficiary designation allows you to specifically name who will get particular assets, typically without the need for court supervision in a probate proceeding. Usually you'll name primary and contingent beneficiaries. The primary beneficiary is the first person or entity named to receive the asset. The contingent is the "backup" in case the primary beneficiary is unable or unwilling to accept the asset. You can name multiple beneficiaries for several types of accounts.

  • Bank and brokerage accounts, such as pay or transfer on-death accounts
  • Retirement accounts like IRAs, 401(k)s and Roth 401(k)s
  • Compensation plans like stock options and bonus plan
  • Life insurance policies you own and those provided by your employer

Most have a default provision that says who the beneficiary will be if you don't name one. Often times the default is your estate. However, this may not reflect your wishes and could have tax consequences.

Addressing life’s changes

You can always change your beneficiary designations. In fact, it's likely that you'll want to do so as your family and finances change over the years. For example, there's no automatic change when you get married. However, in many states, an ex-spouse will automatically be eliminated as a beneficiary. But don't assume this happens. Be proactive and update your plan.

 

Take the quiz

You must name the same person as beneficiary to all of your retirement plans, life insurance and other accounts.

Correct.

You can name the same beneficiaries to everything, but you don't have to. You may have a specific account that you wish to pass on to a particular person or entity while others go to someone else (or multiple people).

Nope.

You can name the same beneficiaries to everything, but you don't have to. You may have a specific account that you wish to pass on to a particular person or entity while others go to someone else (or multiple people).

Why asset titling is important

Titling is just a formal way to describe how you take ownership of property.

  • The way you take title determines whether your will, revocable trust or the titling itself controls the distribution of the asset.
  • You should consider the effect titling will have any time you make a large purchase or enter into a business arrangement.

Joint tenants with right of survivorship

Property is owned by two or more owners. When the first owner dies, the property passes directly to the surviving owner(s). Your will and revocable trust do not control the distribution of the asset unless you are the last surviving owner.

Tenants in common

You own a portion of the asset, while others own other portions. You control the disposition of your portion and they control theirs. Your interest will pass under your will or revocable living trust.

Tenants-by-entirety

Spouses own and must act together in making decisions about the property. This type of ownership is often thought of for asset protection purposes. Your interest passes directly to your surviving spouse. (Not available or limited in some states to particular types of property.)

Revocable living trust

This allows you to avoid probate on assets that are actually titled to your trust during your lifetime. The terms of the trust control how the assets will flow following your death.

Community property

Each spouse owns one-half of the asset and is able to dispose of it as he or she likes under a will or revocable living trust. (Not available or limited in some states.)

Sole or separate property

Assets that you own individually, in which your spouse has no ownership interest. Your will or revocable living trust (or state law if you die without either) controls its distribution at your death.

Getting started

Your situation today may be pretty straightforward, but it can become more complicated as you get older, establish a career, have a family and start saving for retirement. Here are a few simple steps to get you started:

  1. Determine your net worth
    Use the net worth statement worksheet to identify each of your assets. Think about who you want the beneficiary (or beneficiaries) to be for each, and if you know, make note of how each asset is titled.
  2. Review existing agreements
    Review any prenuptial agreements or divorce decrees to determine your potential benefits and obligations.
  3. Review business and investment restrictions
    Review any family business or investment entities to determine what restrictions, if any, apply to your interests in the entities and what terms govern the disposition of your interest.
  4. Review beneficiary designations
    Review the beneficiary designations for any life insurance and retirement accounts to confirm who you currently name and if those individuals or entities still match your intentions.
  5. Meet with your advisor team
    Bring all of this information with you when you meet with your team so they can help you prepare to meet with your estate planning attorney and other advisors.

 

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