What To Understand About Beneficiary Designations And Your Estate

Many people know that making out a last will and testament is not a complete estate plan. However, it doesn't have to be complicated either. Beneficiary designations are one way to ensure that an estate goes directly to someone without passing through probate first.

What Are Beneficiary Designations?

Just as you might have beneficiaries in your will, you can also name beneficiaries to receive certain assets. Beneficiary designations are powerful but simple documents filed with financial institutions. Bank and brokerage houses are two financial institutions that deal in this type of estate planning move.

Without a Beneficiary Designation

The money in a bank account, whether it's checking or savings, is almost immediately frozen after the owner dies (unless it's a joint account). With a payable-on-death designation, however, the funds can be withdrawn upon the presentation of the death certificate.

The same thing goes for a brokerage account. The document used here is called a transfer-on-death designation. The beneficiaries listed on the document have access to the brokerage funds as soon as the brokerage can set up accounts and transfer the funds to the account. The beneficiary can either withdraw the money or leave it in the brokerage account. The account will be in the beneficiary's name.

What Else to Know

These designations are easy to set up. Here is what else you should know about them:

  1. You can have more than one beneficiary on the accounts. The funds are divided equally between the beneficiaries.
  2. A beneficiary designation supersedes a will or a trust.
  3. It's advisable to name contingent beneficiaries. That will cover the death of a beneficiary.
  4. Speak to your estate planning lawyer about beneficiary designations. They may be available to cover several assets beyond bank and brokerage accounts. Some retirement plans have designated beneficiaries, for example.
  5. A simple form must be completed to set up the designated beneficiary at a financial institution. The form should be signed by the account owner and contain the names, Social Security numbers, and current addresses of the beneficiaries.
  6. As with all estate plans, revisit your beneficiary designations periodically to ensure they still reflect your wishes.

When the owner of a financial account passes away, save confusion by letting the beneficiaries know about the account designations ahead of time. In some cases, the assets may be accidentally listed under property that must be probated. Speak to your estate lawyer to find out more about putting your estate together.