Understanding Beneficiary Designations for Your Michigan Estate Plan
Beneficiary Designations
Beneficiary Designations are a common means of controlling the transfer of ownership at death. They work by contractually directing a bank, life insurance company, securities broker-dealer, or retirement plan custodian to transfer account proceeds to named persons. The Beneficiary Designation needs to be made part of the account records during the account-holder's lifetime. Assets that allow for beneficiary designations include insurance policies, retirement accounts such as 401(k) plans, annuities, and other financial accounts.
Pros
The advantages of using a Beneficiary Designation may include:
- Easy and inexpensive to set up
- Usually done without a lawyer
- Quick and easy for the named beneficiary to collect proceeds without going through probate
Cons
The disadvantages of using a Beneficiary Designation may include:
- Lack of control over the beneficiary's use of the proceeds
- Being forced to use a custodian's limited options for naming beneficiaries
- Lack of coordination with the rest of the estate plan -- the Beneficiary Designation takes precedence over the provisions of a Will or Trust
- Causing your estate to lack funds needed to pay expenses and debts
Contingent Beneficiaries
A contingent beneficiary is a “backup” beneficiary who receives the asset in the event the primary beneficiary is unable to.
Integrating Beneficiary Designations into Your Estate Plan
Careful use of Beneficiary Designations can be a great tool for planning. In many cases, we may recommend designating a Trustee to receive the account or policy proceeds to be held and distributed according to the terms of a Trust.
Failure of Beneficiary Designations
What happens if you fail to name a beneficiary or if all the named beneficiaries die before you? It depends. Sometimes a failed beneficiary designation means that the account becomes an asset of your probate estate and passes under your Will if you have one, or according to the rules for intestate estates if you don't have a Will. Some custodians have default beneficiaries specified in their account agreements, and in that case the failed Beneficiary Designation is replaced by the custodian's default provision.
What Assets in an Estate Plan Need Beneficiaries Listed?
Most non-probate assets require at least one beneficiary to be listed. This includes:
- 401(k), IRA and other retirement accounts
- Life insurance policies
- Annuity contracts
Contact an Estate Planning Lawyer in Oakland County Today
You have worked hard and have planned well and want to make sure your loved ones are secure in the event something happens to you. At Lex Novus, our estate planning attorneys help families create comprehensive, inclusive estate plans that address all possible situations and challenges. We will make every effort to help you and your beneficiaries get what you intend to achieve through your estate planning. Contact us either by filling out the online form or calling us at (248) 581-0987 to schedule a consultation.