Designating Beneficiaries Is A Meaningful First Step in Estate Planning

It’s hard to believe, but it’s almost time for our New Year’s resolutions. Maybe you’ve been thinking one of your resolutions should be putting your estate plan in place. This may seem like an overwhelming task and you’re wondering how you’ll muster up the energy to tackle it. Well, a first step is simpler than you think.

In virtually all cases, you should have a Last Will & Testament to identify who should inherit your property and care for your minor children when you die. For some, it might also make sense to have a Living Trust. Deciding which approach is right for you will take some thought and you should discuss your options with an estate planning attorney and other professionals like your financial advisor.

If you want to begin your estate plan and aren’t sure where to start, and regardless of what you decide to do about a Will or Trust, consider putting beneficiary designations in place now for your most valuable assets like your house, bank accounts, retirement assets, life insurance policies, and even your vehicles.

When you complete a beneficiary designation, you are giving instructions as to who should receive a particular piece of property or asset when you die and in what percentages if you are naming more than one beneficiary. The named individual or organization (it could be a Trust or charity, for example) is called the beneficiary.  There are primary and contingent beneficiaries. The beneficiary entitled to receive the property first is primary.  If the primary beneficiary isn’t alive at your death, then the contingent beneficiary is next in line.

Depending on the type of property involved, the designation could take the form of a “transfer on death” (TOD) or “payable on death” (POD) designation that appears on the title, deed or other ownership document.  Vehicles, real estate, and bank accounts routinely have TOD/POD designations and some states recognize them for contract rights, stocks, and other ownership interests in a business as well.

In most cases, a beneficiary designation will efficiently and cost-effectively transfer legal ownership of the property on your death to the named beneficiary without a Will or probate proceeding, which is why this estate planning technique is often referred to as a “Will substitute.” Ownership of the property doesn’t transfer until you die, so you can sell the property, give it to someone else, close the account, or revoke the designation while you are alive.  Also, the creditors of your beneficiary can’t make a claim against your property since the beneficiary doesn’t own it.

Beneficiary designation forms are readily available through financial institutions and insurance companies, and many local DMV offices have their own TOD forms. Forms of Beneficiary Deeds or Transfer on Death Deeds for real estate are available online, but using these forms without first consulting an experienced attorney is risky.

For an asset or account where you probably designated a beneficiary when you set it up, take the time to double-check and confirm that the designation is still appropriate. It is also important that your beneficiary designations fit with the design of your overall estate plan, so be sure to give your estate planning attorney copies of them.

Beneficiary designations are a useful estate planning tool and a meaningful first step in the estate planning process. Regardless of whether you decide to start there or take on your entire estate plan all at once, the key is to just get started.

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