If you have a will or a trust, you might think that’s all you need to ensure your assets are distributed as you wish when you’re gone. But that might not be the case. In reality, naming beneficiaries on certain financial accounts can be an important step in securing your legacy goals — as long as you avoid some common mistakes, like the ones below.
Mistake #1: Not naming beneficiaries
Many types of financial accounts — such as retirement accounts, annuities and life insurance policies — give you the chance to name specific people you want to inherit those assets after your death. If you don’t complete their designated beneficiary forms, though, the assets often are paid directly into your estate. From there, they could end up being distributed to a different person, or in different proportions, than you intended.
If you’re not sure whether you’ve designated beneficiaries, contact an account representative.
Mistake #2: Not coordinating your beneficiary designations with your estate plan
Naming beneficiaries on specific accounts should be coordinated with your overall estate planning objectives and documents. The accounts with named beneficiaries will pass to the named beneficiary and not be directed by the decedent’s will, which may have different intentions.
For example, if you wanted your estate distributed equally between your two children, and you named one of your children as the primary beneficiary on your life insurance policy, then this could create a situation where one child inherits more than the other.
Mistake #3: Not considering the potential impact of designating beneficiaries
In general, you can name nearly anyone you want as a beneficiary. However, there may be extenuating circumstances to consider. For example, if you name an individual with special needs as a beneficiary, could that inheritance alter any government benefits they receive? Do you want to leave assets to a child who is a minor or who doesn’t make smart financial decisions? In cases like these, would it make more sense to put the asset into a trust?
Inheriting certain assets may also have tax implications for the beneficiary. For instance, someone inheriting an IRA may have to pay taxes on distributions from the account. But if you want to leave money to a charity, it can usually “inherit” an IRA without having to pay taxes on the distributions.
Your financial, tax and estate advisors can help you sort through the pros and cons when making beneficiary designations.
Mistake #4: Not assigning contingent beneficiaries
People often stop with naming a primary beneficiary and don’t take the next step to name a contingent beneficiary — someone who will inherit the asset if your primary beneficiary dies before you. Without a contingent beneficiary, if the primary beneficiary predeceases you, then you’ve lost control of what happens to that asset. Depending on various factors — such as the type of asset, state laws and your other directives — it might be included in your estate, or its disposition could be determined by the courts.
It's not uncommon for someone to name a spouse as a primary beneficiary, and then a child as a contingent beneficiary. Some designation forms may even allow you to name more than one contingent beneficiary.
Mistake #5: Not understanding the chain of inheritance
It’s also important to understand what happens if a beneficiary dies before you. In this case, if the beneficiary designation form follows “per stirpes” distribution, the benefit would usually pass to the deceased beneficiary’s own children.
This may also come into play if you name multiple beneficiaries for a single account. For example, someone might name three children as equal primary beneficiaries of an IRA. If one child dies before you and the beneficiary designation form follows per stirpes distribution, then that deceased beneficiary’s share would typically go to their own children. If the deceased beneficiary had no children or per stirpes is not in effect, then usually the deceased person’s share is split among the surviving beneficiaries.
It's important to read any beneficiary designation form closely, and even discuss it with your estate attorney or financial advisor, to make sure you understand how the full chain of inheritance works for each account.
Mistake #6: Not keeping beneficiary designations up to date
Things change over the years, and your beneficiary preferences may change, too. It’s a good practice to review your designations periodically and revise as needed. You might change your mind about who gets what, a current beneficiary may have passed away, or you might want to adjust the percent distribution between multiple beneficiaries.
Mistake #7: Trying to do it all yourself
It’s easy enough to fill out a beneficiary designation form. But understanding the full impact of your designations and how they fit into your overall estate plan can be more complex. That’s especially true if you have complicated finances — or if you have particular factors to consider, such as whether it makes sense to name minor or special needs children as beneficiaries.
Working with your estate attorney and your financial advisor may prove helpful in making sure you fill out your forms in a way that truly means your assets are distributed as you wish.
The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
Investment products and services, such as brokerage, advisory accounts, annuities, and insurance are offered through Hancock Whitney Investment Services, Inc., a registered broker/dealer, member FINRA/SIPC and an SEC-Registered Investment Advisor.
Hancock Whitney Bank offers other investment products, which may include asset management accounts, as part of its Wealth Management Services. Hancock Whitney Bank and Hancock Whitney Investment Services Inc. are both wholly owned subsidiaries of Hancock Whitney Corporation.
Investment and Insurance Products:
|NO BANK GUARANTEE||NOT A DEPOSIT||MAY LOSE VALUE||NOT FDIC INSURED|
|NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY|