Remember that the named beneficiaries of accounts supersede any instructions in your will, so be careful about selecting the right beneficiaries for accounts and keeping the names up to date.
You may have thought having your will done, means your estate plan is complete. However, there’s more to it. Different heirs are able to manage different assets, so what assets you leave to who makes a difference. That’s part of a well-thought out estate plan and can make a big difference to your legacy.
Forbes’ recent article, “Pass On Your Assets Wisely: How To Choose The Right Beneficiaries,” examines several common asset types and considerations to be taken when naming beneficiaries.
Life insurance. These proceeds can be paid to the beneficiaries quickly. After proof of death is established, the funds are paid. Think about heirs who may need ready access to funds after you pass. That’s usually not a minor child. However, if you do name a child, you must designate a guardian or place the proceeds in trust. Otherwise, the state may take control and assign a stranger to manage the money on your child’s behalf.
Assets in a Will. When you pass away, your will is going to be probated, and the assets can’t be distributed until the probate process is complete. Because of this, be sure the beneficiary of any property or assets specified in the will, is in a position to wait. You can also create a revocable living trust to hold those assets, so a trustee can distribute assets directly to beneficiaries without waiting to go through probate.
Retirement plans. When you select the beneficiaries for retirement plans, remember that it can result in tax implications. The younger the recipient, the longer their life expectancy, and the more time they will have to withdraw funds from the plans. That means the account can continue to grow tax-deferred. You can also name a trust as the beneficiary of a retirement plan, and the assets in the trust will be protected from creditors. A retirement plan inherited outside of a trust, may not enjoy this protection. In addition, if a beneficiary is young, the trustee can make distributions under conditions you state when you create the trust.
Be mindful of aligning your estate plan with beneficiary selections. If you have a 401(k) plan and name one child as the beneficiary only that named person receive those funds, regardless of any language in your will. It may be better for one person to get funds from a retirement account and another from a life insurance policy, but it is important to be aware of how the two areas must work together.
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