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 contained in your will, they are an important step in the estate-planning process that must be addresses with particular care and attention to details.
Selecting Beneficiaries
When selecting beneficiaries, be aware of state laws that may require you to name your spouse as a primary beneficiary or grant him or her 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, a surviving spouse who is not named as a beneficiary of his/her deceased spouse’s retirement accounts may make an election to claim 30 percent of the decedent’s estate regardless of the terms of his/her spouse’s will. Instead, you may choose to sign a waiver, during your life, to transfer your retirement savings into a trust or directly to children and grand-children, which may be a preferable option in instances of second and third marriages.
Another important 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, it is critical that you 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 may 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, in order to minimize exposure to estate and gift taxes.
Updating Beneficiaries
Relationships and circumstances evolve over time. For this reason, it is vital that you regularly review your estate plan to confirm or make changes to your beneficiaries over time, 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 with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email info@provweath.com.
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Scott Montgomery is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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Updated on October 28, 2022