Working with an experienced estate planning attorney offers plenty of benefits, and one of them is to help ensure you don’t make a BIG mistake when naming your beneficiary. You wouldn’t think this could be that tricky, but in fact it can be.
First, let’s remember that beneficiaries can be individuals or organizations such as charities. Legally, you can name anyone, any organization, or trust as a beneficiary, but it doesn’t mean it’s a good idea to do so.
So, who should you never name as a beneficiary?
#1 A minor child.
Now I know you are thinking, “That’s not right; I can leave everything to my young child. ” Yes, you can, BUT when you do, you should do so via a trust, which will hold and manage the money until the child reaches the age of majority (or a later date if you like.) If you skip the “trust” part, a government body will likely oversee the funds. That’s not what you have in mind, I’m sure. If you want to designate one or more minor children, work with an estate planning attorney to ensure everything is set up to manage the funds as you wish.
#2 An individual with a disability or lifelong special needs.
At first glance, this may seem incorrect, but read on. If you choose to designate someone with a disability, do so with great care and consideration. If that individual receives government benefits, you certainly don’t want to cause them to lose those benefits when they inherit from you. There are ways to handle this legally. Again, it is best to consult an estate planning attorney for guidance.
#3 Your Estate
In this case, it isn’t who but what. For example, naming your estate as the beneficiary of your life insurance might seem logical, but there is a compelling reason not to do so. If you do, that means the funds from the life insurance will pass through probate before distribution. This can dramatically delay distribution. On the other hand, if you named beneficiaries of that policy (like individuals, charities, or a trust), the assets would typically flow to them without going through probate or creditors. I always recommend to check with an attorney before naming your estate or trust as a beneficiary.
#4 Your Pet
Yes, pets are family, but in the eyes of the law, they are still considered property. So, while you can’t leave it all to Fluffy or Spot, you can provide for your pets’ ongoing care through a pet trust. Or you can name a trusted individual as your pet’s guardian in your will, leaving the funds for their care.
Once you have named beneficiaries, please remember to review those designations periodically. A charity you named as a beneficiary may no longer be in operation. A friend or relative may have passed away. Or your child is now of age, and you want to make different arrangements. I would be happy to assist you with any updates to your estate plan or help you create one. It is the loving thing to do for your family, and I’ll help ensure it is set up legally and the way you want. Please call me at 513-399-7526 or visit my website, www.davidlefton.com.