More Beneficiary Blunders

A while back, I wrote a blog called “Avoiding Beneficiary Horror Stories.” At that time I discussed many potential problems that may arise when you don’t review your forms periodically to ensure they’re accurate. Since then, I have come across a few other scenarios I wanted to share so you can avoid these unfortunate blunders.

Just like we were all born into this life, we will also pass away from this life. Although not much fun to think about, it will happen sooner or later. Since we have no idea when that may be, it’s always best to be prepared. One way to do that is to make sure you have current beneficiary designations for all of your financial accounts from retirement funds to checking and savings accounts.

Tips for beneficiary forms:

1. Never name a minor as a beneficiary:

Under the law, minors are not allowed to inherit money or assets directly. In many states the age of majority is 18 but check the law where you live to find out for sure.

Further, unless a guardian has been appointed, funds cannot be distributed to minors. Since the guardian will take control over the assets, it should be someone you trust with the minor’s best intentions at heart.

Since minors typically inherit the assets once they become legal adults, ask yourself if it’s best for this child to inherit a large sum of money at such a tender age. While some young adults will do just fine, others will have one big party until all the money’s gone. If you have any doubts, consider other options.

2. Never name a beneficiary that receives government assistance:

Rules for receiving government help are pretty restrictive about how many assets or cash a recipient can own and still qualify for help. The last thing you want to do is inadvertently pass on an inheritance that would cause someone to lose their government benefits.

If you have a family member with special needs, it’s often better to set up a special needs trust that can help financially over the beneficiary’s lifetime without jeopardizing their eligibility for government assistance. Speak to an estate planning attorney for more information on this topic.

3. Beneficiary designations trump a will or trust:

Many people mistakenly believe their will or trust will direct how assets should be distributed or utilized when they die. Although that may be generally true, if your beneficiary designation conflicts with your will or trust, the beneficiary form will control. Countless court cases have been fought over this very argument and typically the beneficiary designation comes out on top.

4. Never name just 1 beneficiary:

Some folks name just 1 beneficiary with the belief they will share the spoils evenly with all the other heirs. But legally the sole beneficiary has no obligation to do so and could easily keep all the money for him or herself. Rather than assuming your beneficiary will do the “right thing,” you should make your intentions clear up front.

5. Always name a back-up beneficiary:

It’s always best to name a contingent beneficiary in case something happens to your original beneficiary. Life happens and sometimes so quickly, we don’t have time to catch up.

You can also name multiple beneficiaries by designating a percentage of how much each should receive upon your death. Just make sure your numbers add up to 100%.

6. Never put your beneficiary designation forms on auto-pilot:

The last thing any of us wants to do is disinherit a loved one because we didn’t review our beneficiary designations following a major life event. Review your beneficiary designations if you’ve had any of the following changes to your family’s circumstances:

• A change in your marital status
• A birth of a child or grandchild
• A death in the family
• New job or promotion
• Problems with your health

Although there are many laws and other considerations to think about with your estate plan, you can keep absolute control over any funds you want to go directly to specific heirs by using beneficiary designations. Just be sure to review them occasionally to make sure they are up to date and will convey your legacy to loved ones as you intended.

Have questions? Give us a call at 888.577.2227 or visit our website for more information. There is never a better time to take Charge of your Life Again.

Author Barbara Miller is a Financial Counselor at LSS Financial Counseling.