It has become quite common for clients to list beneficiaries on their brokerage and investments accounts, regardless of whether or not they are retirement accounts. The designation is commonly referred to as a TOD, or transfer on death. With savings, checking and money market accounts held with banks and credit unions, one is also permitted to list beneficiaries, with those usually referred to as “in trust for” accounts.
Bankers, investment advisors
While having beneficiary designations may be advantageous in some instances, clients must first weigh the pros and cons, rather than just following the advice of others. There may be some adverse consequences of doing so. For example, with a married couple, having a beneficiary designation may negate the planning they have done in order to avoid estate taxes or long-term care liabilities. Naming a person under the age of 18 as a beneficiary can be disastrous, as a minor is not legally able to accept money unless there is a court-appointed guardian. Additionally, if you have more than one child, then the beneficiary designation should list all the children, to avoid inequality and fighting. By using beneficiary designations, you may be inadvertently disinheriting people you intend to provide for, and/or giving more to others
If one’s only goal is to avoid probate, there are ways to do so without incurring the risks associated with using beneficiary designations. Establishing a revocable living trust may be a better option. Of course, you should first obtain the advice of an attorney experienced in estate planning.
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