October 05, 2023

The Importance of Beneficiary Designations in Estate Planning

Do you know who the listed beneficiaries are for your IRA or Roth IRA? How about the beneficiaries on your 401(k), 403(b) or 457 plan? How about the primary or secondary beneficiaries on your life insurance? What about any listed beneficiaries on your annuity? If you do not know who or whom has been listed in these beneficial positions, or if it has been some time since you last looked, check all your beneficiary designations now, because we often have clients whose designations still list their former spouse or a parent, much to their chagrin.

Beneficiary designations are not something that requires a trip to an attorney’s office. Almost every financial institution and insurance company now allows you to review and make changes to beneficiary designations by e-mail or online application. If neither of those options is available, or if it is not convenient for you, a simple telephone call to your advisor should allow you to at least order a change of beneficiary form to be done by mail. Most of these procedures are easy to change and require nothing more than a signature and a date (no notary or witnesses are needed). You may also need the legal name, address and birthday of a potential beneficiary. Some institutions also ask for the social security number and the relationship to you (if any) for a beneficiary.

When naming beneficiaries, keep the following issues in mind:

  1. Is the person I am naming a minor (age 17 or younger in Florida).
  2. Is the person I am naming receiving any government assistance that he or she could lose if they receive these funds.
  3. Does the person I am naming have the ability to appreciate and use these funds in a proper manner (i.e. will they just blow through the money?).
  4. Will the person I am naming understand the tax consequences of the funds once received (if any)?

Recall that trusts and charities can also be named as a beneficiary. Trusts allow funds to be available for a beneficiary but managed by another person or entity. Distributions from a trust can be spread out over time or the funds can be limited with respect to how they can be spent (such as for education or health). Designating a charity as a beneficiary allows you to leave a legacy and may even lower or eliminate income, inheritance and/or estate taxes.

Lastly, remember that many institutions allow you to designate a backup or contingent or secondary beneficiary should the primary or first beneficiary predecease you. Unless you have appointed a trust as your beneficiary, do not let these lines stay empty. Spend some time considering whom you might want to appoint as a backup beneficiary. There have been many instances in our office where naming a secondary beneficiary saved the estate from having an additional probate asset.

If you should have any questions regarding beneficiary designations, or any other estate planning concerns, feel free to contact one of our attorneys for assistance.

Contact Revis, Hervas & Goldberg P.A.

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