Often, a primary goal in the estate planning process is to avoid probate. In addition to a revocable living trust, a beneficiary designation can also be an option in achieving this goal. Naming someone as a beneficiary on a specific asset, such as an IRA, 401(k) or a life insurance policy, generally avoids the probate process, if properly titled.Get Your Personalized Quote
Often, a primary goal in the estate planning process is to avoid probate. In addition to a revocable living trust, a beneficiary designation can also be an option in achieving this goal. Naming someone as a beneficiary on a specific asset, such as an IRA, 401k or a life insurance policy, generally avoids the probate process if properly titled.Get Your Personalized Quote
A beneficiary designation is the description of the person or persons you want to receive a specific asset upon your death. A common example of a beneficiary designation would be listing your spouse or children as beneficiaries on a life insurance policy. It’s important to point out, however, that beneficiary designations cannot be added to all types of property.
Beneficiaries can include spouses, children, other family members, friends or even charities. Beneficiary designations can generally be added to assets such as bank accounts, securities accounts, retirement accounts, life insurance policies, savings bonds and range of other assets. Designating a beneficiary will determine how an asset is distributed at the owner’s death, regardless of the provisions of the person’s will or trust.
Two specific types of beneficiary designations exist for real estate, financial accounts and other assets. Pay-on-death (POD) and Transfer-on-death (TOD) designations allow you to add a beneficiary to certain types of assets. Under this circumstance, the designated beneficiary receives the assets at your death, without the asset being subject to probate.
To learn more about these types of beneficiary designations, click on the following links:
While beneficiary designations can, and do, play a significant role in the overall estate planning process, it’s important to recognize that they alone should not be considered an "estate plan." Also, similar to a will, beneficiary designations only take effect upon the death of the owner. They do not provide the owner or the beneficiary protection in the case of incapacity. For this reason, it’s important to consider the utility of other legal documents, such as a will, revocable living trust, powers of attorney or other legal documents as part of an overall more comprehensive estate plan.