An overwhelming 2 out of 3 Americans do not have an estate plan in place. They have not drafted a Will or Trust. They don’t have a Power of Attorney or Advance Directive for Health Care in place. And many are unaware that they can utilize something called “beneficiary designations” on many of their financial and retirement accounts.
Beneficiary designations are a useful tool in the estate planning toolbox. In short, using a beneficiary designation allows your bank and retirement accounts to pass directly to your chosen beneficiary quickly after your death, without having to pass through probate court. In some states, beneficiary designations aren’t available for all assets, but in Arizona, probate can be avoided by naming beneficiaries on all your assets—even your vehicles! Based on your unique circumstances and goals, your estate planning attorney may suggest alternative strategies to ensure the proper protection and distribution of your assets.
What is a Beneficiary Designation?
The first step in being able to properly employ beneficiary designations is knowing what they are. With certain financial accounts, like IRAs and life insurance policies, you have the ability to name a specific beneficiary who will legally gain control of your account or assets if you pass away. By passing directly to your named beneficiary, that account or asset can bypass the probate process. Your named beneficiary must be a living person (not a business or other entity), and beneficiaries on IRAs must meet certain eligibility requirements per the SECURE Act of 2019.
Which Accounts Use Beneficiary Designations?
Some of the most common types of accounts that allow for beneficiary designations include:
- Life insurance policies
- Real property
- Bank Accounts
If you don’t list a beneficiary on these types of assets before you pass away, they will be subject to probate. That being said, you should never assume that your money or property will immediately get transferred to those you love. Without an estate plan in place, the laws of the state will determine what happens to your accounts and assets.
The Benefits of Proper Account Titling
Using beneficiary designations can provide peace of mind, knowing that everything you’ve worked hard to achieve will be passed onto the people you love and care for. It’s important to note that beneficiary designations are not fail proof. It’s so important that you update your beneficiary designations regularly, as your life circumstances change. Did you get remarried? Did one of your children develop a substance abuse or gambling addiction? There are many reasons why you might want to change your named beneficiaries, but forgetting to do so can have catastrophic results.
Why Hiring an Attorney is Best Option
While naming beneficiaries on your accounts seems very simple to do, it’s still best to consult with an estate planning lawyer to help create a well-rounded, robust, and effective plan that covers all the bases…even those you didn’t think to consider! The best way to gain peace of mind is through experienced legal counsel.
At Empowered Legacy Planning, we’ve seen the impact of poor planning. We’ve seen Wills and Trusts that conflict with beneficiary designations, and legal loopholes that turn your “seamless” plan into a chaotic, complicated nightmare.
That is not the legacy you want to leave behind for your family.
For an estate plan you can trust, contact Empowered Legacy Planning. We work with individuals and families to create effective plans that empower legacies. Contact us today to start planning your estate!