A designated beneficiary is named on a life insurance policy or on a financial account as the person who will receive those assets, in the event of the account holder’s death. Why are beneficiary designations for Estate Planning important? Not having your beneficiary designations set up correctly can cause a lot of trouble after you pass away according to Beck & Lenox Estate Planning & Elder Law, LLC.
NJ Money Help’s recent article entitled “Beneficiary designation – specific or not?” says that naming a beneficiary takes a little consideration. Here are suggestions:
When naming the beneficiaries on your accounts or insurance policies, you should always consider a primary and secondary (or contingent) beneficiary.
The owner of a policy or account can name multiple beneficiaries. The proceeds or assets can be divided among more than one primary beneficiary. Likewise, there can also be more than one secondary beneficiary.
The primary beneficiary or beneficiaries are the first ones to receive the asset. The secondary beneficiary is second next in line, if the primary beneficiary dies before the owner of the asset, can’t be found, or refuses to accept the asset.
Note that simply naming beneficiaries in generic terms, such as “wife,” “spouse”’ or “children,” may create legal issues, if there’s a divorce or in case someone becomes disenfranchised.
It is always best to name your beneficiaries specifically and if they are minors, make certain you have designated a guardian.
If you have a situation where you are responsible for a special needs child or adult, listing them as a beneficiary could put any government funds they receive at risk. You should consult with an estate planning attorney like the ones at Beck & Lenox before making that decision. Beneficiary designations for estate planning are not always a simple matter.
Because our lives are constantly changing, you should review your life insurance policies, IRAs, 401(k)s, and any other instruments that require beneficiary designations every couple of years to make certain that everything is exactly the way you want.
Reference: NJ Money Help (Oct. 2017) “Beneficiary designation – specific or not?”