There are many financial assets that will not automatically pass through a will. These include life insurance policies, retirement accounts, and other non-probate assets. For many people, these types of assets make up most of their net worth. There are many ways to ensure that these assets go to the right people upon your death. While you can choose to set up a survivorship or transfer on death designation, beneficiary designations are the most common.
What is a Beneficiary Designation?
A beneficiary designation can be set up by a form with a financial company to designate who will inherit your non-probate assets upon your death. A beneficiary designation will not go through your estate and will override your will, so it is important to do it correctly, particularly with assets that are jointly owned. In those cases, if you don’t specifically designate a beneficiary, your jointly owned, non-probate assets might just go to your default beneficiary (usually a surviving spouse). The best thing about beneficiary designation is that it will keep your assets out of disputes in probate court.
How To Designate a Beneficiary
These days, it’s easy to designate a beneficiary online, though it’s not always easy to find where the information is. Life insurance policies are usually simple to review online, as are retirement accounts. Other assets might require in-person meetings and consulting with investment advisors.
Who Should Be the Beneficiary?
You can name one or many individuals as a beneficiary, but you can also name a corporate entity as your beneficiary. It entirely depends on your circumstances. However, it is best not to appoint minor children or loved one with special needs as your beneficiary because a trust or estate might make more sense.
Reviewing and Updating Your Beneficiaries
It is always important to regularly review your beneficiary designation after life changes, or at least once a year. Some of the life events that might require changing your beneficiary are:
- Divorce: Failing to change the beneficiary designation can lead to complicated legal battles after your death, and the assets might simply transfer to the beneficiary on record.
- Remarriage: Upon remarriage, it is very important for both spouses to review their designations. This is particularly crucial in cases of blended families.
- Death of a spouse: Because a surviving spouse is a usual default beneficiary, you should definitely designate a contingent beneficiary in case of death or refusal of an inheritance.
- Birth: If your children are beneficiaries, make sure you include a designation that includes any newborn children.
Avoiding Common Mistakes
There are a lot of pitfalls in beneficiary designation. The most prominent one is making a beneficiary designation that is inconsistent with your overall Texas will or estate plan. Additionally, you might lose crucial benefits by having your assets pass directly to a beneficiary, such as tax savings strategies or creditor protections. Most importantly, it is important that whatever the designations, you have enough funds to cover estate management taxes and probate costs.
