A comprehensive estate plan can contain several different types of documents, many of which contain contingent beneficiary designations. These documents may include trusts, life insurance policies, retirement accounts, and more. The beneficiaries listed on these documents will receive those assets after you pass away, so your choice of beneficiaries is important. An estate planning lawyer at Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. can help ensure that your designation of beneficiaries carries out the overall goals of your estate plan.
Understanding Beneficiary Designations
A beneficiary designation allows you to name the person who will receive an asset that you own after your death. By choosing a beneficiary, you can ensure that the asset will go directly to whomever you choose, without the necessity of opening an estate and going through probate court. Therefore, beneficiary designations allow assets to pass from one person to another after death more quickly and efficiently than if they had to go through probate.
Common types of assets that have beneficiary designations include the following:
- Life insurance policies.
- Retirement accounts, including 401(k) plans, IRAs, pensions, and annuities.
- Investment accounts.
You may choose to name one or more persons as your beneficiaries to these types of non-probate assets. You also can name a non-living entity, such as a charity, foundation, or trust, as a beneficiary. For example, if you want all your assets to go into a trust, you could name your trust as the beneficiary of your life insurance policies and retirement accounts. The proceeds of the trust then would go to the named beneficiaries of the trust according to the terms of the trust, subject to certain rules
The Role of Contingent Beneficiaries
The person or entity whom you designate to receive an asset after your death is your primary beneficiary. A contingent beneficiary is a “back-up” beneficiary or beneficiaries whom you designate to receive ownership of assets if the primary beneficiaries you have designated cannot take ownership of those assets. For example, a contingent beneficiary may take ownership of an asset after your death if the primary beneficiary has passed away before you.
Naming a contingent beneficiary is important for many reasons. First, there is always the possibility that your primary beneficiary may be unable to take ownership of the asset after your death. If you want to maintain control over who receives ownership of the asset, then the best way to do that is to name a contingent beneficiary.
Furthermore, suppose you don’t name a contingent beneficiary, and your primary beneficiary cannot take ownership of the asset. In that case, the asset usually becomes a probate asset or part of the deceased person’s estate. As a result, an estate must be opened for the deceased person in probate court for the asset to be distributed to the person’s heirs, either according to the terms of their will or the laws of intestate succession, if they have no will.
Considerations in Naming Beneficiary Designations
While you may think that it is easy to choose beneficiaries for your assets, that is not always the case. You should take various considerations into account when choosing your primary and contingent beneficiaries. For example, you generally must designate adult beneficiaries or those over 18 years of age. In addition, if you want to leave assets to minors upon your death, you likely need to designate a trust or a custodial account under the Transfers to Minors Act.
Another major consideration may be determining who will need financial support following your death. Family members who are dependent on you, such as your spouse, children, or other extended family members, may be the most appropriate persons to name as beneficiaries. However, you also must be mindful of the impact that naming certain family members as beneficiaries could have on them. For instance, if you have an adult child with special needs, naming that child as the beneficiary of an asset could result in that child becoming ineligible for certain government benefits, such as Medicaid or Supplemental Security Income (SSI). In that case, you may need to set up a special needs trust as the beneficiary of the asset, with the adult child as the beneficiary of the trust.
Some assets, such as life insurance policies, may have specific rules about designating beneficiaries. Other assets may require your beneficiary designation to be irrevocable, or, for various reasons, you may wish your beneficiary designation to be irrevocable. An irrevocable beneficiary designation means that you cannot revoke or change the beneficiary designation unless the beneficiary agrees to it. Therefore, you should get legal advice and proceed carefully if you are making an irrevocable beneficiary designation.
Contact Our Office Today for All Your Estate Planning Needs
At Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A., an estate planning attorney can provide you with a full range of estate planning services, including choosing primary and contingent beneficiaries on documents that require those designations. In addition, if you lose a loved one, we are here to assist you with all estate-related needs.
We can guide your family through the complicated legal landscape of estate planning law as quickly and efficiently as possible. Call us at (954) 966-2112 or learn more about the legal services we can offer you online. Schedule an appointment to talk to us about your legal needs right away.