The basic document while planning an estate is drafting a will that sets the guidelines for the distribution of your assets to your heirs in your chosen way in the supervision of your chosen person. The person or organization receiving your assets are known as a beneficiary. You can name anyone except the person who acts as your witness while signing your will. While it is expected that your heir will outlive you, it needs not to happen always. Hence, you need to be careful while drafting your will and placing the provisions that your estate needs not to face probate for distribution.
The beneficiary can either be a single individual or multiple individual(s). In case of multiple beneficiaries, you are required to choose the way you want your assets to be distributed among them. The distribution can be equal or unequal based on circumstances and age of the beneficiaries. You can also distribute half among your heirs while the rest half in a charity or organization.
Apart from a will, you also might have invested in an insurance policy as well as retirement accounts which also require designating a beneficiary so that after your demise they can get the benefit of the policy or account. Here also, you can choose single or multiple beneficiaries for such accounts and policy.
Also, it is advised that you must designate an alternate beneficiary so that in case the primary beneficiary dies then the property can be inherited by someone of your choice. If you don’t name an alternate in your will, then a gift to a deceased beneficiary is said to have “lapsed” or “failed.” Depending on state law where you are residing and how the will is written, the property will go either to the residuary beneficiary named in the will, the beneficiary’s descendants, under your state’s “anti-lapse” law, or your heirs under state law, as if there were no will.
Why Your Will Should Name Designated Beneficiaries?
In case you die without designating a beneficiary in your will, it is said to be intestate. In such case, your estate will be subjected to the state court to decide its fate called a probate. Probate means that the distribution will be delayed, money will be wasted and it will be troublesome for the family as well.
To avoid a probate, you simply need to name designated beneficiaries along with the percentage share that each of them will receive. After your death, your heirs can present your death certificate to the financial institution, fill out a form, and they will receive the money within a few weeks. In this way, you can avoid probate, court involvement and save time and expenses.
However, in case you have minor beneficiaries who can’t receive the wealth directly according to the law and in case of spendthrift beneficiaries who can’t handle the wealth, then you need to think of some other options. Now a day, several such institutions allows the account owner to designate how the heirs can receive the death benefits which includes lump-sum, period certain, and amortization over the beneficiary’s life expectancy. You could even split up the benefit so that your beneficiaries get part of it as a lump sum with the balance as systematic payouts.
On the other hand, an IRA doesn’t allow you this however you can assign a custodian or a trust who will take care of your wealth. However, to manage this in a better way, you can opt for a IRA asset will that allows you to detail out what exactly you want along with the rights of the beneficiaries like the limit of transaction, etc. You can also extend the timeline till which the beneficiary can receive the money. However, according to the new laws effective Jan. 1, 2020, most non-spouses have been limited to a 10-year window for withdrawals from inherited retirement accounts.
Also, you must review these documents once in a year and if required update them as well. Apart from this, the document also need to be reviewed when a life changing event takes place in your life like remarriage, divorce, child-birth, etc. so that the beneficiaries should be according to your current wishes. Even you need to review the alternate or secondary beneficiaries accordingly as well.
Designating a beneficiary in a will or document is not that easy as it appears. It is advised to check the form carefully before signing. This will let you live peacefully to be assured that your loved ones will have long term financial security.