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There are many different ways and estate planning tools to pass along wealth to the next generation. The most common methods include the use of a will or trust, or sending all of the property through probate without an estate plan. However, probate can be time consuming, costly, and often leads to your heirs inheriting far less than what you intended. Using beneficiary designation accounts can significant reduce the amount of your estate that must pass through probate before it is inherited by your loved ones.

Benefits of Beneficiary Designations

beneficiary designation names a specific person to inherit the assets associated with that account without needing to pass through probate. A beneficiary designation is binding, and a will or other estate planning tool cannot supersede that decision. A beneficiary can be changed at any time, and most accounts that require a beneficiary allow for more than one person to be named. Common beneficiary designation accounts include life insurance policies, 401(k)s, IRAs, payable on death bank accounts, annuities, pension plans, and more.

Coordinating Beneficiary Designations

The most important aspect of coordinating beneficiary designations is to make sure that they are cohesive with the rest of your estate plan. You do not want one estate instrument contradicting a beneficiary account. In addition, you must review all of your beneficiary designations every three to five years or anytime that a major life event occurs. This keeps your beneficiaries up to date and avoids an unintentional inheritance.

There are also times when a direct beneficiary designation may not be the most appropriate course of action. In these cases, a trust can be named as the beneficiary of an account for the purpose of providing for your heirs. Typically, naming a trust as the beneficiary is recommended in the following circumstances, if the:

  • Beneficiary has not reached the age of majority;
  • Beneficiary has not reached the proper level of maturity;
  • Beneficiary has disabilities or health concerns;
  • Beneficiary has potential creditor risks; or
  • Primary goal is to preserve principal for remainder beneficiaries.

However, it is important to note that if you choose to use a trust with your beneficiary designations, you should check on the state laws to ensure protection of your assets. The safety of your estate through a trust and beneficiary designations will be dependent on how the state allows these estate planning instruments to be utilized. For example, a recent U.S. Supreme Court case held that the creditors of the beneficiary of an inherited IRA are able to reach those funds, whereas they could not be touched if the trust had been named as the beneficiary instead.

Contact an Estate Planning Attorney

Call or contact the Law Office of John C. Grundy today for a private and free review of your case if you have questions regarding beneficiary designations in your estate plan or any other issue regarding estate planning. Our office has represented clients with their estate planning needs throughout Cortland, Akron, Youngstown, Aurora, and Warren.