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Beneficiary Designations on Financial Accounts Trump Your Last Will & Testament

July 8th, 2014

Posted in Asset Protection,Estate & Personal Planning

In a previous blog, (click for link), we posted about the importance of asset titling in estate planning and briefly described how beneficiary designation forms may implicate your personal plan.  Beneficiary designations are intended to be a straightforward method for heirs to circumvent the probate process and receive funds in a timely manner.  Beneficiary designations are found in many of your accounts, including retirement accounts, life insurance policies, bank accounts, stocks, certificates of deposits, bonds, mutual funds, and annuity contracts. 

However, sometimes account holders forget they have filled out these forms and fail to update them.  This is a problem because the beneficiary designation is a legally binding document that takes precedence to your will.  Thus, the assets will go to the person you named as beneficiary regardless of your current relationship status or the provisions in your will.  For this reason, it is important you update your beneficiary designation to reflect your current intentions.  Here are a few “do’s and don’ts” when it comes to beneficiary designations:

  • Name a contingent beneficiary.  You should name a contingent beneficiary because your primary beneficiary may not survive you.  If you pass away without a beneficiary in place, the estate may determine how the account will be distributed, and this can cause familial problems.
  • Do not designate a person receiving public benefits as your beneficiary if the designation will disqualify the person from receiving public benefits.  If a beneficiary has special needs that qualify him or her for public assistance, designating such person as beneficiary of your retirement account could affect his or her eligibility for public assistance.  Given the strict income and asset limits for many public assistance programs, even a small inheritance may disqualify a person with special needs from receiving the assistance that he or she needs.

In lieu of a beneficiary designation, consider creating a special needs trust for the disabled person.  Make sure to contact a qualified Florida attorney to help properly draft such a trust so that the disabled person may be designated as beneficiary of a retirement account without endangering his or her public assistance.

  • Do not designate a minor as a beneficiary of your retirement plan.  As discussed in a previous blog, (click for link), the problem with a minor being a beneficiary is that the accounts cannot be distributed to the child unless a guardian is appointed, which can be very costly and burdensome.
  • Review and revise your beneficiary designations regularly.  Regularly review your beneficiary forms to make sure that the designations are up-to-date.  Furthermore, revise your designation if there are changes in your family situation, particularly if there has been a marriage, divorce, death or birth in your family.  Keep copies of your beneficiary forms and check to see if requested changes to the forms have been processed.
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