| |
Naming names is important so that
your assets go to the right people upon your death. It's not enough,
though, to put people in your will. For certain assets, such as
pensions, you need to designate beneficiaries.
To make sure your wishes are clear, here are 10 tips
on naming beneficiaries:
 |
10 tips on naming beneficiaries: |
|
|
|
|
1. Understand
the limits of a will.
Just because you name someone in your will, that person might
not receive a designated asset if they are not also named as its
beneficiary. A beneficiary trumps a will every time, according to
the Financial Planning Association, a trade association for certified
financial planners. The FPA gives this example: "Say you name
your children in your will as heirs of your entire estate, yet an
ex-spouse is still named as the beneficiary of your life insurance
policy and your 401(k) plan. Your children will end up with your
house and favorite golf clubs, but your ex-spouse will end up with
the insurance and retirement funds."
2. Know
when beneficiaries are required.
You must name beneficiaries for estate assets that will bypass
probate and go directly to heirs. According to Rande Spiegelman,
vice president of financial planning at the Schwab Center for Investment
Research in San Francisco, these types of assets include retirement
accounts (both employer and individual), annuities and life and
disability insurance policies.
3. Decide
who gets what.
Once you have your list of assets that require beneficiaries,
you face the crucial task of doling out your worldly goods. True,
it's often difficult to decide which family or friend gets what.
But if you fail to name a beneficiary, your state of residence will
do the job for you, and that official choice might not necessarily
be what you would want. Your spouse might receive everything, for instance, leaving your beloved siblings or thicker-than-blood best friend out of the inheritance. Or the state might presume that an heir named in your will
should receive a particular asset that requires a beneficiary. It all depends on your state's intestate succession laws. Whatever
the state decides could be challenged, but you can help prevent
time-consuming inheritance battles by naming beneficiaries.
4. Don't
name your estate as a beneficiary.
If you select your estate as beneficiary, your assets will
end up going through probate, a costly and time-consuming process.
Plus, the death benefit would count as part of your estate, meaning
it could increase any estate taxes. And even though the probate
process itself is lengthy, the asset actually could be distributed
sooner than you would have intended. For example, it could be ordered
paid as a lump sum rather than as periodic payments.
5. Don't
name minor children as beneficiaries.
By law, children can't control the assets, so the court will
name a guardian, either a person or a financial institution, for
the assets. Instead, set up a trust or designate a guardian yourself
if you want to leave your pension to your kids. Also be aware that
children can take control of assets when they turn 18, something
you may not want, so consider a contingency plan.
|
