Beneficiary Designations and Estate Planning
Beneficiary Forms Can Control Major Assets
An estate plan is more than a will or trust. Retirement accounts, life insurance policies, annuities, and certain financial accounts may pass according to beneficiary designations rather than under the distribution provisions of a will.
That makes beneficiary review one of the most important—and most frequently overlooked—parts of estate planning.
Primary and Contingent Beneficiaries
A primary beneficiary is the person or trust first in line to receive the asset. A contingent beneficiary is the backup if the primary beneficiary cannot receive it.
Clients should consider both levels. A designation that names only one beneficiary can create unintended results if that person dies first, disclaims the asset, or becomes ineligible to receive it.
Common Assets With Beneficiary Designations
- IRAs and other retirement accounts.
- 401(k), 403(b), and other employer-sponsored retirement plans.
- Life insurance policies.
- Annuities.
- Payable-on-death or transfer-on-death accounts where available.
- Certain brokerage or investment accounts.
Coordinate Beneficiary Forms With the Trust
Sometimes naming an individual directly is appropriate. In other situations, the better choice may be a trust—particularly when the beneficiary is a minor, has special circumstances, should not receive a large inheritance outright, or when the family wants longer-term management and protection.
Retirement accounts and tax-deferred assets require additional care because the identity of the beneficiary can affect distribution timing and income-tax consequences.
Review After Major Life Changes
Marriage, divorce, births, deaths, remarriage, a change in wealth, a new trust, or a change in family relationships are all reasons to review beneficiary forms. Old designations can remain in effect long after the client’s intentions have changed.
Sapient Law Group reviews beneficiary designations as part of a coordinated estate plan so account-level instructions and legal documents are working toward the same result.
