Founder
Many people are unaware that if you have a beneficiary on your retirement account, life insurance, or other asset, the beneficiary designation supersedes your will. For example, if your will leaves all your assets to your spouse, but beneficiary designations have your children listed as the primary beneficiary, then your children, not your spouse, will inherit the assets. That is why it is imperative to check your beneficiary designations when you are doing estate planning.
The beneficiary designation is of particular importance when you are switching banks or investment or brokerage companies since the old designations do not transfer–new ones are needed. Certainly, for retirement accounts, such as IRAs and 401ks it is essential to have one or more beneficiaries listed, as the income tax consequences of not doing so are extremely unfavorable. Retirement accounts can list a trust as beneficiary, but special paperwork prepared by a tax attorney are required in order to avoid adverse tax consquences.
It is also imperative that the beneficiaries you name are over the age of 18, as persons under the age of 18 may not legally inherit. If a beneficiary is disabled, and collecting government benefits, receiving monies outright my cause that person to lose his or her benefits. If naming a charitable organization, it is important to have the name of the organization correct in all respects.
Lastly, having beneficiary designations may have estate tax ramifications, so it is important to view the designations as just one part of your estate plan. If all of your assets have beneficiary designations, probate will be avoided, but an estate tax problem may be created. The big problem which can occur is that if all of one’s assets pass to beneficiaries directly, outside of one’s will, there will not be a source of money to pay funeral and other expenses unless all of the beneficiaries agree to contribute to the payment of expenses.