Mar

11

2021

Caution: Be Sure To Set Up Beneficiary Designations Correctly On Life Insurance, Retirement Accounts, Brokerage Accounts, & Bank Accounts

Posted by: Adair Buckner

When you purchase life insurance, open a brokerage account or a bank account, or set up a retirement account, you hopefully were asked to designate a beneficiary to receive the balance in the account on your death. This is a key way to avoid having to go through probate to have the asset distributed to the persons of your choice.

The caution is that you need to look into the future past at least your first desired beneficiary to designate who you would want to receive the asset if that person or one of a group of persons dies before you. Unfortunately, I see many situations where only a primary beneficiary or beneficiaries were designated, and that person or one of those persons predeceased the owner.


black couple smiling with attorney

If only one beneficiary had been designated, and he or she predeceased the owner, a probate will be necessary then to determine who receives the asset in most cases. The whole purpose of making a beneficiary designation has thus been defeated.

This could have been avoided simply by naming a successor beneficiary. I always recommend naming at least one person or group of persons as successor beneficiaries on such assets.

The same caution applies if you have named a group of persons as beneficiaries, for example, your children, and one of them predeceases you. If you fail to say that you want that child’s children to receive their interest if he or she predeceases you, the surviving children will likely receive the asset. That may not be what you intended.

It is important to spell out on the beneficiary designation if you want the children, or lineal descendants of a beneficiary, to receive his or her interest if he or she predeceases you.

Following these simple tips can save a lot of time, expense, and trouble, but they are frequently overlooked.


Choosing Beneficiaries 

Choosing a beneficiary of an asset on which this is possible is a very wise step in taking care of its passage quickly and inexpensively on your death. Making sure you have taken all the steps necessary in designating the beneficiaries is extremely important.

Most married couples will designate their spouse as the beneficiary. Many times, the owner does not name an alternate beneficiary, and the spouse predeceases the owner of the asset. Then, the surviving spouse forgets to go in and make a change of beneficiaries. The wise thing to do at the outset is to name children or other alternate beneficiaries to receive the asset if your spouse does not survive you.

If you are single and have children, you likely will name your children as beneficiaries. If one of them predeceases you, you have the problem discussed above about what happens to his or her interest. Again, from the outset, you should say on the beneficiary designation “If one of my children fails to survive me, his or her interest shall pass to his or her lineal descendants.”

If you are single and have no children, you likely will name your parents or siblings as beneficiaries. Once again, you need to provide in the beginning what happens to an interest left to a parent or sibling if they predecease you.

If you are looking at planning how your assets will be passed on to your loved ones on your death, please consult Adair M. Buckner to see how the use of these tools can be a key part of your estate planning.

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