Coordinating Beneficiary Designations for Your Estate Plan

Review from Mandy Vindiola

Area Manager at Arbonne International (Independent Consultant)

It has been such a pleasure working with Steve over the years. We have used him with all of our estate planning and real estate protection needs. He is creative, trustworthy, knowledgeable, detail-oriented and hard-working! We are honored to call Steve our trusted adviser and friend!

I am a Grand Junction, CO based estate planning attorney and much of my practice involves the thoughtful and careful selection of the named ?beneficiaries.

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Regardless of whether you have had a will or a living trust drafted and in place, you very likely own assets that have what we call designated beneficiaries. A life insurance policy is a good example. You may own the policy and you may be the one whose life is insured by the policy. The one getting the money when the insured passes away is called the beneficiary. Typically, the beneficiary is listed in the policy as being your spouse or your children.

This is also true with your IRA, 401(k) and certain other investment accounts. They all have a beneficiary designated in the paperwork held by the company and the plan administrator. ?Choosing who (or what entity ? such as your corporation or LLC) to name as your beneficiary is too often just the routine insertion of a spouse?s name into the blanks. In some cases even, at the time your employment begins and you find yourself signing up for the company?s 401(k), the HR department clerk simply fills in your spouse?s name without even asking you. It?s a pretty routine task.

Yet the choice of a beneficiary is something that should nearly always require careful thought.?

For example, let?s assume you own a life insurance policy and you think you want your son from a first marriage to receive the proceeds upon your death. So when you write your will you direct that the life insurance proceeds go to him. ?Yet, when you purchased the policy way-back-when, you named First Wife as beneficiary and you never thought to change that. Surprise. At your death, First Wife will receive the policy proceeds regardless of the provisions in your will.

This has important business planning ramifications, as well. Often businesses will purchase life insurance on key employees or partners or owners. When business succession planning is undertaken seriously, ?insurance issues raise many questions beyond just the naming of the proper beneficiary. It is a planning area filled with complex decisions such as who will own the policies, who will be the named beneficiaries, what must, or may be, done with the proceeds, just to name a few.

Consider also how you might want your beneficiary to receive those insurance proceeds or IRA accounts. Do you want your named beneficiary to receive substantial amounts of cash in his or her pocket regardless of the physical, mental, or financial condition of the beneficiary? Certainly not if you think about it.

What if the beneficiary is in a rocky marriage? What if his business is on the verge of failing? What if the beneficiary is planning to enter assisted living and needs to qualify for governmental assistance? What if the beneficiary was severely injured in the same accident that took your life and now has a multitude of medical, and perhaps other, creditors. Should the injured beneficiary?s bank account be laid bare for those creditors, legitimate and otherwise?

And since we usually can?t know about those conditions ahead of time, don?t we need to plan for them just in case?

If those insurance proceeds and those retirement accounts were paid instead into a trust for the benefit of that beneficiary and distributions of the money subject to the control of a friendly trustee rather than the invasive power of a creditor, what might be the differences thereafter in the life of the beneficiary?

Source: http://stevegammill.blogspot.com/2013/03/coordinating-beneficiary-designations.html

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