Use Caution When Designating Beneficiaries for Investment Accounts




Virginia Beach, VA (Law Firm Newswire) March 5, 2013 – Beneficiary forms can derail your carefully-laid estate plans.

Hook Law Center (formerly Oast & Hook)

Hook Law Center (formerly Oast & Hook)

On a wide variety of investment vehicles, people have the option of directly naming beneficiaries for those assets. The advantage is that when the owner dies, the assets go directly to the beneficiaries, bypassing probate, which can be time-consuming and expensive. The disadvantage is that designating a beneficiary overrides your will.

Elder law attorney Andrew Hook commented, “Naming beneficiaries for your investments certainly has a place in estate planning. But it is important to manage those designations carefully and incorporate them into your comprehensive estate plan. Implemented improperly, they can contradict your wishes for your estate, endanger government benefits for a disabled relative, or cause unnecessary tax consequences.”

Experts recommend reviewing beneficiary designations at least every few years, and especially after a life-changing event.

Mr. Hook continued, “Key times to review your beneficiaries include after a marriage or divorce and after the birth or death of a close family member. Rollovers and conversions of retirement accounts are also important events, because beneficiary designations generally won’t carry over from your old account to your new one.”

Investors may name individuals, charities and other private organizations, trusts, or their own estates as beneficiaries. They may also decline to name a beneficiary at all, in which case their wills determine the beneficiaries. They may name one or more entities, including, for example, all their surviving children. Experts advise designating beneficiaries similarly across all accounts as opposed to naming one beneficiary on one account and another on the next. This helps keep the distribution of assets predictable and fair.

Those to avoid naming as beneficiaries include minors, the disabled, and in certain cases, one’s own estate or spouse.

When assets are left to a minor, a court appoints someone custodian of the funds, which can be expensive.

Individuals as young as 18 may have complete control over inherited assets, which can create a very different problem. It is not unusual for teenagers with financial windfalls to spend themselves into a financial hole, ending up in worse condition than if they had not inherited anything.

Children and adults with disabilities should not be direct beneficiaries of investments, as this can endanger their eligibility for important government benefits. Instead, special needs trusts, also called “supplemental needs trusts,” can be created on their behalf and be named as beneficiaries.

When investors choose not to designate beneficiaries, nonretirement assets typically go to their estates. For retirement assets, the account administrator’s policy will determine what happens. This might mean one of your largest single assets going to your estate when it could instead go directly to beneficiaries and incur less tax.

The elder law attorneys and estate planning lawyers at the Hook Law Center in Virginia Beach and Suffolk, help Virginia families with wills, trust & estate administration, guardianships, long term care planning, special needs planning, veterans benefits, and more.

Hook Law Center
295 Bendix Road, Suite 170
Virginia Beach, Virginia 23452-1294
Phone: 757-399-7506
Fax: 757-397-1267

5806 Harbour View Blvd.
Suite 203
Suffolk VA 23435
Phone: 757-399-7506
Fax: 757-397-1267

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