Comprehensive estate planning ensures that your wishes are carried out if you become incapacitated or pass away. For many people, this planning includes their will, a power of attorney, life insurance, and a healthcare directive. One important piece of the puzzle that is often overlooked is beneficiary designations.

If you have questions about estate planning or beneficiary designations, please contact us today.

Using beneficiary designations in estate planning

You have the opportunity to name a beneficiary for most of your assets. Your life insurance policy requires you to designate a beneficiary. And you likely have a beneficiary named for your retirement accounts.

Checking and saving accounts can have a beneficiary that is not a joint owner on the account. This is often called a “payable on death” arrangement in which a named individual can only access the funds after your death.

At the heart of estate planning is the assurance that wishes are carried out. If your beneficiary designations are outdated, unclear, or conflicting, there could be litigation

Common mistakes people make when naming a beneficiary

It’s easy to make mistakes when you name a beneficiary. That’s why it’s so important to work with an estate planning law firm to ensure that all of your paperwork is complete, conflict-free, and aligns with your goals.

Some of the most common beneficiary mistakes that we see are:

  • An ex-spouse or former partner is still listed as a beneficiary. After a break-up, many people forget to change their beneficiary on their retirement account, life insurance, and other assets. If, for some reason, you do want your former spouse to remain a beneficiary, this wish should be made crystal clear in your will.
  • There is a conflict between a beneficiary designation and the will. Any time that you change or add a beneficiary, you’ll need to do that in two places: on the asset’s beneficiary form and in your will.
  • You designated a charity that later closed down. In a perfect world, you would receive some type of notification when this happens, but things can fall through the cracks. When our attorneys do a review of your estate planning, we’ll look for these types of changes.
  • One of your beneficiaries passed away. If your primary or contingent beneficiary dies or becomes incapacitated, you’ll need to change your designations. In the case of a death, you’ll want to add a new beneficiary. If the person remains mentally or physically incapacitated, you may want to consider a trust in their name.
  • A beneficiary becomes incarcerated. If your beneficiary is in jail or prison, you may need to reconsider this beneficiary. You should take into account how long their expected sentence is. You should also be aware of any fines or settlements they will have to pay out. Inheriting any assets may make life more complicated for them in the long run. Our attorneys can help you understand your options to provide for a loved one who is incarcerated.
  • You have a change of heart. Perhaps you had a falling out with someone you named as a beneficiary. Or, maybe they’ve proven that they’re irresponsible and will only waste their inheritance. You can always change your beneficiary designations as you see fit.

There are countless more errors and omissions that can happen with beneficiary designations. That’s why it’s so important to review your estate planning annually, or any time your beneficiaries experience a life change.

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Who can be named as a beneficiary?

A beneficiary can be an individual, a charity, a trust, or your estate.

  • Individuals. Often, a person’s partner, children, and grandchildren are beneficiaries. However, in most cases, you are free to name any individual as you see fit. Your beneficiaries could be close friends, more distant relatives, or other people who are important to you.
  • Charity. If you have a charity in mind, you should first contact them to see if they can be a beneficiary. In addition to any paperwork you have to fill out for your asset (retirement account, life insurance policy, etc), the organization may have its own forms, too.
  • Trust. A trust allows a third party (the “trustee”) to hold an asset on behalf of a beneficiary. A trust may save money in taxes and court fees, as the assets can pass outside of probate.
  • Estate. There are pros and cons to naming your estate as a beneficiary. It may simplify your estate planning process. However, there are tax implications when an estate is the beneficiary. You can talk through the advantages and disadvantages with one of our attorneys.

Types of beneficiary designations

There are two types of beneficiaries: primary and secondary/contingent.

  • A primary beneficiary is first in line to receive the asset.
  • A secondary or contingent beneficiary will receive the inheritance if, for some reason, the primary beneficiary cannot. Oftentimes, the primary beneficiary has passed away and then the assets will roll to the secondary beneficiary.

Both your primary and secondary beneficiaries should be noted in your will.

Finding the best Worcester estate planning lawyer for you

Your estate is your legacy. You want to find the best Worcester estate planning lawyer for you and your family. We’ve been helping clients with their wills and beneficiary designations for over 24 years. We’re ready to help you. We can create an estate plan to fit your assets and goals, and review any existing estate planning that you’ve already done. Contact us today to discuss your estate plan.

Frequently asked questions

If you’re in the middle of estate planning, you likely have many questions. Here are answers to some of the most common questions we are asked about beneficiary designations.

Do beneficiary designations avoid inheritance tax?

Many beneficiary designations are set up to avoid inheritance tax. However, there can be some exceptions, such as certain retirement accounts. When you work with our attorneys, we’ll go over the inheritance tax implications for each of your assets and accounts.

Does being a beneficiary supersede a will?

Under most circumstances, a beneficiary designation does supersede a will. However, you shouldn’t rely on this fact or take it for granted. If you make changes to a beneficiary, you should update your will, too. If your will and your beneficiary designations don’t match, it could create conflict and possible attempts at litigation.

Can a beneficiary be contested?

Yes, a beneficiary can be contested in certain situations. Family members may contest a beneficiary if they believe their loved one wasn’t of sound mind or acted under duress. For example, if the deceased had dementia and changed a beneficiary to be a purported love interest.

Another instance that may be contested is when an ex-spouse is still listed as a beneficiary. If the deceased remarried, does not have minor children with the ex-spouse, and the split was acrimonious, it could be argued that the designation was an oversight. The new spouse may have legal merit to fight the beneficiary designation.

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