Why it is Important to Designate Beneficiaries on Life Insurance Policies, Retirement Accounts, etc.

When it comes to estate planning, many people focus on creating a will or trust to ensure their assets are distributed according to their wishes after they pass away. While a will or trust is an essential and core part of an estate plan, it is also important to designate beneficiaries on your life insurance policies and retirement accounts. Why?

First, naming a beneficiary on an account allows for a direct transfer of the account to the named beneficiary upon your death. Without a designated beneficiary, assets could be subject to probate and require opening a probate proceeding with the court before distribution can be made.  Naming a beneficiary on an account also provides a certain level of privacy because information about the designated assets and their distribution will not become public record.

Second, an account may be subject to intestacy laws if no beneficiary is designated on the account and the account owner does not have a valid will.  Intestacy laws dictate how assets are distributed when someone dies without a will and has assets that are subject to probate.  The reality is that the intestacy laws may not align with your wishes, meaning your assets are distributed in a way or to a person that does not reflect your desires.

Third, naming beneficiaries allows you to maintain control over how your assets are distributed. Not only can you name specific primary and secondary beneficiaries, but you can also allocate percentages among multiple beneficiaries. This allows you to determine who gets how much, ensuring you can provide peace of mind to your loved ones in the way you intend. You can also update your designations as often as you see fit, ensuring that your current relationships and wishes align with who gets your assets.

Fourth, naming beneficiaries can optimize tax advantages for your loved ones.  Most retirement plans have certain tax considerations that should be taken into account when naming beneficiaries on the accounts.  Certain beneficiaries may have more options depending on their age and relationship to the decedent.

A comprehensive estate plan includes coordinating the beneficiaries on your insurance policies, retirement funds and other financial accounts to ensure your estate plan works as intended.  If you need to hire a Denver estate planning attorney to ensure your estate plan and beneficiary designations work in unison, call the attorneys at Brown Law Firm, LLC at (303) 339-3750 to get started.