You must know that an estate plan is not limited to the preparation of final will and trust. However, most estate law attorneys ensure to include the final will and trust and planning for power of attorney and pre health care directive. A revocable living trust can also be included in estate planning for some cases. Even if executing these documents is crucial for estate planning, it still has one underrated, crucial step: beneficiary designations.
- For Non-Probate Assets
Non-probate assets are those properties that the descendants hold and own at the time of their death, which get transferred with respect to a contract. This type of property cannot get distributed unless the decedent states any death advantages to their estate.
If you consult any probate law firm, you can benefit from every documentation for non-probate assets that consists of beneficiary designations. Some of them are annuities, individual retirement accounts (IRAs), life insurance policies, 401(K) plans, and investment accounts or bank accounts payable on death and transfer on death designations.
- Impacts And Results Of Not Updating Beneficiary Designations
The distribution outlined in a will depends on the beneficiary designation. So, if you don’t alter or update the beneficiary designation for non-probate assets, your intention of distribution may not match after your death.
- If you neglect to review and update the beneficiary designation, your assets won’t be distributed as intended. For instance, if you opened an investment account before your children were born and nominated your brother as the beneficiary.
- Now, if you mention on the last will that your children will get the equal ratio of the amount, they will not be entitled to that. This loophole will ensure the transfer of money to your brother.
- Naming And Updating The Beneficiary Designation
For proper will estate planning, you must know the name of your beneficiaries and update the designations. You can take the help of an estate planning lawyer to know the designations that make the right fit for your individualized estate plan. The lawyer will help you with the beneficiary designation issues to consider them as mistakes and avoid them in future.
As suggested by the expert estate planning lawyers, if an account holder experiences life-altering events like marriage, divorce, death of a loved one, or financial changes, they must review and update the beneficiary designations.
If you hire an attorney, they will perform the documentation work to confirm the latest beneficiary designations with financial institutions and insurance companies.
Types Of Beneficiary Designation
A beneficiary designation is of various types, and the number of types has significantly increased after the latest SECURE act. While managing your assets, you must keep in mind some of the additional categories of the beneficiary designation, such as:
- Eligible Designated Beneficiary or EDB: This type of beneficiary designation falls in one of the five enlisted categories by the SECURE act 2019. It has certain advantages over other types, which can be well-explained by your attorney.
- Designated Beneficiary or DB: A DB is any individual who has been named as the beneficiary but stays out from the list of one of the five EBD categories.
- Non-Designated Beneficiary or NDB: Any non-living beneficiary can be termed as the non-designated beneficiary, such as the Estates, Trusts, and charities.
- Primary Beneficiary: The individual who is named as the primary beneficiary gets entitled to receive the benefits at first compared to others.
- Contingent Beneficiary: A Will may lay out an outline on the contingent person as the beneficiary who may receive the benefits if the primary beneficiary is deceased or unable or cannot accept the overall assets.
- Secondary Beneficiary: This is nothing but the interchangeable term often used for contingent beneficiaries.
Note: You must have seen that any named beneficiary is not necessarily always a living person. As per the definition of the non-designated beneficiary, you can make arrangements to include your assets by transferring them to your estate.
What Is The Need To Set Up A Beneficiary Designation?
If you made a beneficiary designation on your savings accounts, retirement accounts, and life insurance policy, then you have made a good decision. This is because if someone doesn’t set up a designated beneficiary, your estate becomes the beneficiary automatically. It can be subject to a lengthy, hectic and expensive probate process.
You must name and include a contingent beneficiary while designating the beneficiary to prepare for cases where the primary beneficiary is predeceased. You must be as specific as you can while designating beneficiaries. You must designate it by their name and ensure to specify how the assets are to be divided and distributed among them.
So, get in contact with the best estate planning lawyer today and get done with all the documentation and legal paperwork for updating the beneficiary designations without any hassle. Also, look for the attorney who has years of experience and reputation in handling all issues related to beneficiary designation.