Clients will often ask us “How can I avoid having my kids in a situation where they need to probate my estate?” Beneficiary designations that directly transfer assets like life insurance, retirement accounts, and bank accounts upon death, is one option that can be used. However, several issues can complicate these seemingly straightforward arrangements.
Outdated Designations
Many people forget to update beneficiaries after major life events like divorce, remarriage, or deaths. Ex-spouses may inadvertently inherit assets, while current family members receive nothing. Regular beneficiary reviews prevent these scenarios.
Conflicting Documents
When beneficiary designations contradict the provisions of your Last Will and Testament, the beneficiary designation typically prevails. This can create unintended asset distributions, family conflicts, and costly litigation. Make sure your estate plan is aligned across all documents.
Missing Contingent Beneficiaries
Without backup beneficiaries, assets will most likely flow into your probate estate if your named primary beneficiaries predecease you. This subjects the assets to probate and potential creditors, defeating a key advantage of beneficiary designations.
Tax Implications
Improper beneficiary structuring can trigger unnecessary taxes. For retirement accounts, stretched distributions over a period of time can often provide better tax advantages than lump-sum inheritances.
Account-Specific Rules
Different accounts have unique beneficiary rules. ERISA retirement plans require spousal consent to name non-spouse beneficiaries. Some accounts limit successor beneficiary options. Understanding these distinctions prevents invalid designations.
To avoid these issues we recommend that you review the beneficiary designations for all of your assets annually, speak with your attorney to ensure that your beneficiary designations are coordinated with estate planning documents, name contingent beneficiaries, and consult professionals about account-specific requirements. Taking these practical steps on a regular basis will ensure beneficiary designations fulfill their intended purpose.
Founded by a nurse attorney and with offices in Acton, Andover, and Sudbury, Massachusetts, Generations Law Group helps families navigate the complex areas of estate planning and elder law to inform and protect loved ones of every generation.
