Beneficiary Designations (Part 1)

It is a good idea to review your beneficiaries and POD designations regularly.

Ringing in the New Year for many people includes setting goals and getting organized. As a result of this, my law practice has been busy the last couple of months helping our clients with estate planning.

One often overlooked area of estate planning is that of reviewing the beneficiaries of your life insurance policies and annuities, and the Pay-on-Death (POD) designations on IRAs, mutual funds and bank accounts. If your designations are out-of-date, when you pass away your assets could go to an unintended person, such as a former spouse, for example, no matter what your Will says. As your life changes, it is wise to periodically review all your designations and bring them up-to-date.

Knowing who to name as a beneficiary or POD designee depends on your circumstances and objectives. If your objective is to fund your Estate and make sure there are sufficient assets to pay creditors and carry out your estate plan, naming your Estate as your beneficiary insures that the proceeds are used to pay funeral expenses and debts, with the balance passing to your heirs as directed in your Will.

When naming individuals as beneficiaries or POD designees, some parents make the mistake of naming their oldest child as the sole recipient, with the idea that the oldest child will settle their affairs and share the wealth with their siblings. These same parents often direct in their Will that their estate is to be divided equally among all of their children. If the life insurance proceeds and financial accounts represent the bulk of the estate, and the oldest child does not share the proceeds with their other siblings, the parents may have unwittingly disinherited their other children.

Having said this, there are situations where designating individuals to receive the proceeds of a financial account or life insurance policy does make sense. This will be the subject of our next Senior Tip.

In conclusion, a good time to review your beneficiary designations is in March, as you receive your 1099 Tax Forms from the financial institutions holding your assets. Give your financial institutions and insurance policy holders a call and make sure your beneficiary designations are current and in keeping with your wishes.

Tom Packer is an Elder Law Attorney serving all of Southeast Idaho. As part of his law practice, Tom offers Life Care Planning to deal with the challenges created by long-term illness, disability and incapacity. If you have a question about a Senior’s legal, financial or healthcare needs, please call us.