Saturday Financials — Designated Beneficiaries

Estate Planning 101 — Things I learned as a successor trustee 


Name Your Beneficiaries


Designated beneficiaries trump wills & trusts


What is a beneficiary?

A beneficiary is a person, a trust, or an entity (like an organization) that you select to receive a specified share of your account in the event of your death.  

You can name anyone as the primary beneficiary, and you can name more than one.  You can also name contingency beneficiaries, who are the recipients of a specified account if none of your primary beneficiaries survive you.  Naming both primary and contingency beneficiaries ensures that your assets will pass to the people &/or entities of your selection.


Minors can be named as beneficiaries as long as you designate a guardian who will be able to oversee the account until the minor reaches legal age in your state (usually 18 or 21 years old).  

Source citations:TheFreeDictionary_definition "beneficiary";  Fidelity: FAQs about Beneficiary Updates


What happens if you do not name a beneficiary?

If you do not designate a beneficiary (or, if all of your beneficiaries predecease you), the assets go to the surviving spouse at the time of your death.  If you do not have a surviving spouse, payment of the account goes to your estate.  At that point, it's either going through probate or it gets handled as per instructions in your trust.

Source citation:  Fidelity: FAQs about Beneficiary Updates


Keep your account beneficiaries updated!

I ran into trouble on this issue when my dad died because he had not updated his life insurance policy.  He had attempted to remove his deceased wife as the primary beneficiary, but was unable to complete the process before he died.  

The insurance company refused to recognize his trust as the primary beneficiary, even though my dad had specifically listed the insurance policy as part of his estate assets.  So, our trust attorney had to go to court and ask a judge to order the insurance company to pay the benefits to the trust, which they did.   


You can update your beneficiaries at any time through the institutional custodians of the accounts:

  • Bank accounts
  • Retirement accounts (IRAs)
  • Stock holdings

Source citation:  Nolo: If I Name Beneficiaries for my Bank Accounts



Designated beneficiaries trump everything else.  As long as someone is listed as a named beneficiary on an account, the account assets go directly to them.  The beneficiary designation bypasses a will or a trust, so if they don't match, the payment goes to the named beneficiary.  If there is a dispute, it gets handled in court by a judge.
  
This is the easiest and most effective way to protect your assets and make sure that your accounts are passed to your designated recipients.

Go online & update your accounts today! 

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