Using Beneficiary Designations in Estate Planning
A beneficiary designation is a form associated with a particular asset that allows you to name one or more beneficiaries who will inherit that asset upon your death. Beneficiary designations essentially only apply to assets that have legal paperwork associated with their ownership, and are arguably the simplest forms of estate planning.
Some examples of assets that commonly provide for beneficiary designations include:
- Bank accounts
- Investment accounts
- Retirement accounts
- Title to your vehicle, and
- Title to your home
Depending on the specific kind of asset, a beneficiary designation may be known as a Transfer-on-Death (TOD), a Payable-on-Death (POD), or regarding the title of your home, a beneficiary or TOD deed.
Beneficiary designations allow you to transfer your assets outside a probate court. Furthermore, these assets will be transferred immediately when proof of death of the original account holder is given.
What You Should Know About Using Beneficiary Designations For Estate Planning in Virginia
For the majority of estate plans, beneficiary designations will play a huge role. Life insurance, IRAs, and most other liquid assets come with the ability to name beneficiaries that will receive the asset or proceeds upon your death without court involvement. The institution simply needs the death certificate, and oftentimes another short form, in order to honor the beneficiary designation.
This may sound simple, but there are two very important things you should know about beneficiary designations:
1. Beneficiary designations control, even over contradicting terms in a will or trust
For example, suppose you create a will that states that your daughter is to receive all of your estate when you die. Sometime later, you take out a life insurance policy and name your new spouse as the sole beneficiary.
In this case, your new spouse (not your daughter) will get the proceeds by virtue of the beneficiary designation on your life insurance policy. This is why it is critically important to review your beneficiary designations often, and make sure they align with your current estate planning wishes.
2. You should know who your contingent beneficiaries are
Your contingent beneficiaries are the people that would receive the account or proceeds if your primary beneficiary dies before you. Sometimes, you can name a contingent beneficiary who will receive the proceeds, and sometimes you cannot.
What happens in an instance when you cannot or just do not name a contingent beneficiary, and one of your primary beneficiaries dies before you, will depend on the contract you signed with your insurer or financial institution, or in the case of a Thrift Savings Plan, the Statutory Order of Precedence set by 5 CFR 870.801.
Often, the share of the asset that was to go to your deceased beneficiary will pass to his or her children. Other times, it will pass to the remaining primary beneficiaries, or may revert to your estate, which means it will be controlled by your will (or the laws of intestacy if there is no will) and be subject to probate. The form you fill out may give you options for what happens in the event of the death of a named beneficiary, and you should avail yourself of the opportunity to do so. And if you have a revocable or testamentary trust, you can avoid the asset going to probate by establishing your trust as the primary or contingent beneficiary in the first place.
Consult with an Experienced Virginia Trust and Estate Planning Attorney
Beneficiary designations can provide you with the ultimate say over what happens to certain assets when you pass away. But, your named beneficiaries must be carefully selected, and must be aligned with your most current estate planning wishes.
To ensure that your beneficiary designations work the way you want them to, be sure to consult with a qualified estate planning professional. Call our law firm today at (703) 553-2577 or use the contact form to schedule a consultation with an experienced Virginia trust and estate planning attorney.
The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.