Naming beneficiaries to receive proceeds from a life insurance policy or retirement account is a difficult decision that requires consideration of a range of factors. Because these selections supersede designations in your will, they are an important step in the estate-planning process that must be addressed with particular care and attention to detail.
Selecting Beneficiaries
When selecting beneficiaries, be aware of state laws that may require you to name your spouse as a primary beneficiary or grant them the right to a certain percentage of your estate after you pass away. For example, under Florida’s Elective Share or Election Against a Will, surviving spouses who are not named beneficiaries of their deceased spouses’ retirement accounts may make an election to claim 30 percent of the decedents’ estate regardless of the terms of their spouses’ wills. Instead, you may choose to sign a waiver during your life to transfer your retirement savings into a trust or directly to children and grandchildren, which may be a preferable option in instances of second and third marriages.
Another critical point to consider when naming beneficiaries is your selection may negatively affect government benefits provided to surviving family members, such as special-needs children. Therefore, you must address beneficiary designations with your entire estate plan and unique family needs in mind.
Naming Backup Beneficiaries
While insurance companies and retirement plans require owners/insureds to name one primary beneficiary to receive assets upon the owner’s death, it is recommended that owners name a secondary, contingent beneficiary to inherit assets when the primary beneficiary is not able to receive them. Account owners may select as many beneficiaries as they wish and consider naming a trust as a beneficiary to protect assets from creditors. In addition, you should consider establishing a properly drafted insurance trust to own your life insurance policy and receive the death benefit upon your passing to minimize exposure to estate and gift taxes.
Updating Beneficiaries
Relationships and circumstances evolve over time. For this reason, you should regularly review your estate plan to confirm or make changes to your beneficiaries, whether you need to add a child or grandchild after a birth or remove a beneficiary due to divorce. Updating beneficiaries is as simple as going online or contacting your insurance company or retirement plan and completing beneficiary change forms. If you choose to name a beneficiary other than your spouse, it is prudent to speak with an advisor to understand the consequences of this decision.
About the Author: Scott Montgomery is a director and financial planner with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Ft. Lauderdale, Fla. office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, Fla. 33301 (954) 712-8888.
Scott Montgomery is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
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Posted December 7, 2023