Designate A Beneficiary And Lower Probate Expense

By |2019-01-15T18:15:38+00:00December 16th, 2018|Estate Planning|

What’s in a name? A lot if that name is a beneficiary of your annuity.

Your annuity fund has the possibility of becoming a significant financial asset, one that can significantly benefit both you and your heirs in the future. Annuities, along with other financial contracts such as 401(k), life insurance policies, and IRA’s, comprise the most significant part of an estate for many people.

That’s why it’s so important to periodically review all your annuity, IRA, 401k, insurance contracts and your wills and trusts to determine if your beneficiary designations are up-to-date.

As important as beneficiary designations are, many people fail to give them much thought. Even those who sell, and service insurance and retirement products may not make regular client beneficiary review a part of their best practices. A typical financial planner may not fully understand the implications of a particular designation and thus cannot give his or her clients useful advice as to how to correctly choose a beneficiary.

Beneficiary reviews can force us to confront changes in our lives which may be unpleasant or stressful. No one likes to think about their mortality or the mortality of their loved ones. We may be hesitant to make needed changes to beneficiary designation due to health concerns, impending divorce, incapacity, or family dynamics because we hate thinking about those issues.

Beneficiary designations are also overlooked in the planning process because a lot of us assume that a well-constructed will is going to take care of everything. Unfortunately, people sometimes spend significant amounts of time and money crafting the “perfect” will only to discover that insurance benefits, 401k’s, annuities, and IRA’s will not pass under that will. Instead, they pass under contract law to those designated as beneficiaries. In many cases, more value can pass via beneficiary designation than under a will, making those designations even more critical than a will.

Evaluating and updating beneficiary designations will ensure a smoother transfer of your assets when you die and can lighten the load for your heirs at a particularly stressful and sad time in their lives. It can help you transfer benefits directly to a named individual, rather than dragging that transfer out in probate.

A proper beneficiary designation can also help you determine who receives any benefits that remain under your contracts when you die and offers you a bit of flexibility that a will alone doesn’t provide.
While I am not an attorney, I do have an understanding of the importance of making the best decisions possible when naming a beneficiary. I know of many situations where the beneficiary designated by the insured was not suitable and resulted in a stressful and unsatisfactory situation upon that insured’s passing.

That’s why I recommend meeting with your estate planning attorney and/or financial advisor on an annual basis to discuss changes that have occurred in both your personal and professional life during the year.

For example:

  • Did you or one of your primary beneficiaries marry or divorce?
  • Did you or they have a child? Did you change jobs or acquire a business?
  • Did someone you named as a beneficiary die during the year or become incapacitated?
  • Were there any adoptions?
  • Did a primary beneficiary become mentally impaired or unstable?
  • Do you want your minor children named they since they will be unable to access the money without a court-appointed guardian?
  • Did you name a special needs child as a beneficiary?
  • Do you fully understand the future implications of EVERY beneficiary designation?

In short, you want to take some time and evaluate every beneficiary, both primary and contingent, to determine whether they make sense.
Some substantial assets, including your annuities, can pass outside of your will. Don’t you want to ensure that they are passed on correctly, and in a manner that will provide your heirs with the money you want them to have, in the quickest and most efficient way possible?

About the Author:

Eric Hutter
Eric M. Hutter is a multi state licensed financial professional with over 25 years of experience. He is a featured author and contributor to FOXBusiness.com specializing in planning for and protecting your retirement. Host of the Eric Hutter Safe Money And Income Radio Show. Web Sites: ospreyretirement.retirevillage.com | ospreyretirement.com