Beneficiary Designations (Part 2)

In some situations, naming an individual as a Beneficiary does make sense.

Last month, we discussed the reason for naming your Estate as the beneficiary on IRA’s, life insurance policies, mutual funds, bank accounts, and annuities. Naming your estate as the beneficiary of these accounts provides funds to pay your debts and final expenses. Your Personal Representative will then transfer the remaining property in your estate to those persons or charities you have named in your Will.

However, in some situations designating an individual instead of your Estate, as your Beneficiary, does make sense. If you have a small estate consisting only of insurance and a bank account, naming an individual as the beneficiary of the insurance and setting up a Pay-on-Death on the bank account, avoids the need to probate. Payments from the insurance company and the bank are made directly to the individuals that you have designated.

In another example, if you receive Medicaid to pay for your care in an assisted-living facility, when you pass away, Estate Recovery will file a claim against your estate for the cost of your care that was paid for by Medicaid. Insurance proceeds are not subject to Estate Recovery, so you would want to designate an individual, not your Estate, as the beneficiary of your insurance policy.

Finally, if your spouse’s care is being paid for by Medicaid, you don’t want to name your spouse as the beneficiary of your insurance policy. If your spouse receives insurance proceeds while on Medicaid, it may jeopardize his or her eligibility for Medicaid—if your spouse’s assets at the end of any given month exceed $2,000, he or she will become ineligible for Medicaid.

In conclusion, each individual circumstance is unique, making it difficult for a one-size-fits all answer as to whom you should name as a beneficiary. If you have questions, it may be worthwhile to review your specific situation with an attorney.

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.