Beneficiary Designations

Beneficiary designations are instructions made by an asset owner naming who will inherit specific assets upon their death. These designations allow certain assets—such as life insurance policies, retirement accounts, and some financial accounts—to pass directly to the named beneficiaries, bypassing the probate process. This direct transfer can save time and reduce costs for beneficiaries since the assets do not have to go through court administration.

Key points about beneficiary designations include:

• Who can be a beneficiary: A beneficiary can be a person (such as a family member), an entity (like a charity), or even the estate itself. Naming the estate as beneficiary means the asset will be distributed according to the will or trust rather than directly to an individual.

• Multiple beneficiaries and shares: Asset owners can name multiple beneficiaries and specify how much each should receive, either by amount or percentage.

• Types of beneficiary designations: Assets can be designated "per capita" (divided equally among beneficiaries) or "per stirpes" (if a beneficiary predeceases the owner, their share passes to their descendants).

• Legal considerations: Beneficiary designations generally override instructions in a will for those specific assets. They must be made following the issuing institution’s protocol and can be updated as circumstances change (e.g., marriage, divorce).

• SECURE Act impact: For retirement accounts, the SECURE Act defines "designated beneficiaries" and "eligible designated beneficiaries," which affects withdrawal rules for inherited accounts.

• Avoiding probate: Because assets with beneficiary designations transfer outside of probate, they can be distributed more quickly. However, this can sometimes complicate legal challenges or claims by other interested parties.

In summary, beneficiary designations are a crucial estate planning tool that directs how certain assets are passed on after death, often allowing for a faster and more direct transfer to the named individuals or entities without going through probate.