Naming a beneficiary can be easy or not. It strictly depends on your unique situation. So who should you NEVER name as a beneficiary?
Before we go on, remember beneficiaries may be individuals or organizations such as charities. And you have beneficiary designations related to your will, life insurance policy (ies), and retirement accounts. And legally, you can name anyone, any organization, or a trust as a beneficiary, but it doesn’t always mean it’s a good idea.
So here is a quick guide to who you should 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. So 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 however you wish.
#2 An individual with a disability or life-long special needs.
Again, at first glance, this seems to be wrong but read on. If you choose to designate someone with a disability, do so with great care. 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 seek the advice of an estate planning attorney.
#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 to make sense, but there is an excellent reason to NOT do that. 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.
Once you have named beneficiaries, please don’t forget to revisit 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 help you with any updates to your estate plan or help you put one together. 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.