Beneficiary designations are incredibly important, but often
misunderstood or not understood at all by those who are preparing their wills
and planning their estates. Many people believe that a trust will handle the
distribution of assets like life insurance, IRAs, retirement plans, annuities,
and some employee benefit plans. In fact, these are all controlled by
beneficiary designations. Understanding how to properly name beneficiaries, and
how to avoid common mistakes in beneficiary designation, is key to ensuring
that many of your assets end up where they belong.

If you don’t designate the beneficiary who will receive
these assets after your death, it’s possible that the assets will be
distributed to someone other than who you intended. For example, some custodial
agreements will automatically default to the spouse, and if there is no spouse,
then to the owner’s surviving children, and then to the estate. This is a
helpful default in the case of no beneficiary designations, but doesn’t ensure
that your assets go to the person that you would have chosen.

Another scenario could result in the account becoming part
of a probate estate, which can often result in delayed distributions, greater
costs of administration, and income tax regulations that can be less than
beneficial.

Setting and Updating Beneficiary Designation

As a result, it’s incredibly important to not only establish
beneficiary designation, but to keep it updated as time goes on. These
designations should be regularly updated based on life events, including
births, deaths, marriages, divorces, or other changes in the relationships or
dynamics of your family and loved ones. Failing to update these designations
can result in either assets being distributed to someone you didn’t intend, or
failing to be distributed to someone you did intend to include but never got
around to including.

Common Beneficiary Designation Mistakes

Aside from failing to name a beneficiary at all, here are
some other here are some more of the most common mistakes to avoid.

Naming an estate as beneficiary

Naming your estate as the beneficiary may eventually result
in your heirs receiving the inheritance you intended, it isn’t the most
efficient way to make that happen. It can result in greater tax liabilities, as
well as less flexibility when it comes to how and when the assets are
distributed.

Naming a charity as co-beneficiary

When a charity is named as co-beneficiary alongside an
individual, that individual could be unable to stretch their payments over the
course of their lifetime if they fail to meet a deadline of September 30th
of the following year to pay the charity’s full interest in the designation.

Naming a trust as beneficiary

 

While this is possible, it can be much more complex and
expensive to draft and update a trust versus a simple beneficiary designation.

Amuni Financial, Inc. is a Broker-Dealer and Registered Investment Advisor. Member FINRA/SIPC. Please see our website for the states in which we’re registered to do business.

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