Don’t Name These People or Entities as Beneficiaries
By: Barry E. Haimo, Esq.
September 16, 2021
When it comes to estate planning, one of the biggest decisions you’ll make is who to name as a beneficiary. Beneficiaries are those people or entities designated in your estate plan to inherit your assets. They can inherit assets from a trust, retirement plans, bank accounts, life insurance, and more. To say it’s a big decision is an understatement.
You may have some ideas about who should be named as a beneficiary, but there are definitely some people and entities who should be avoided. Here’s what you need to know about designating beneficiaries in your estate planning and who or what you may want to keep out of the plan. Make the wrong call and you could end up facing significant taxes, chaos, court, costs, conflict (litigation), and a host of other unpleasant and destructive surprises.
What Is a Beneficiary?
We briefly touched on it above, but before you can understand who or what shouldn’t be a beneficiary in your estate plan, you have to first know what a beneficiary is and what purpose they serve.
The term beneficiary simply refers to a person or entity that will benefit from your estate when you die. Legally, naming someone or something your beneficiary means that they will inherit assets whether they are named for a particular asset or not.
When it comes to estate planning, many people designate beneficiaries in order to help provide for them and make sure their assets are going where they want after they pass.
Mistakes To Avoid When Naming a Beneficiary
There are several mistakes commonly made when someone names a beneficiary. They include:
Designating Your Estate as Beneficiary
Some people assume that if they name their estate as their beneficiary, then the executor of the estate or any trustees in a trust that’s been set up will have the control to distribute the assets as you want to your beneficiaries. This is not the case.
When you name your estate your beneficiary, then those you want to inherit your assets will need to initiate probate in order to establish who or what should receive your assets in accordance with the trust or will you’ve left behind. Probate is a costly process and delays the distribution of your assets, so it’s something that should be avoided if possible.
Designating a Minor as Beneficiary
You can certainly name a minor as a beneficiary to your estate, but doing so will complicate things upon your death. Financial institutions cannot directly pay benefits to a minor, so a conservator or custodian will have to be appointed to manage the inheritance until they come of age. In Florida, this means age 21.
Talk to an estate planning attorney about the less complicated avenues you can take to name a minor child as a beneficiary — such as creating a trust or naming them a co-beneficiary.
Designating Beneficiaries That Cannot Manage It
You may have someone in your life who you would designate as a beneficiary… but know you shouldn’t because they won’t be able to manage the inheritance on their own. For example, someone financially irresponsible or someone who is disabled.
An attorney can work with you to create a trust that appoints someone else to manage the assets of your estate for the beneficiary and enforces limits on how those assets are to be used. The trust can then be named as a beneficiary.
The point? What you don’t know can hurt you when it comes to estate planning.
That’s why we’ve created Haimo University, your Estate Planning 101 resource. With our 4-step unique proven process, leaving a legacy you can be proud of is easier than you think.
Call us to get started today at 954-228-3369.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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