How to Make Sure Your Beneficiaries Receive What You Intended

Designating a beneficiary is essential when you want your loved ones or favorite charity to receive benefits after your death. The trust creator, generally yourself, names the beneficiary and a trustee who manages the funds and distribution of payments to your designated beneficiary.

The trustee of your trust has an important role in its management. It’s vital that you appoint a trustee who can handle the fiduciary duty of distributing the funds and benefits from a life insurance policy, bank or savings accounts, and other assets of your estate. Naming your beneficiaries and choosing a responsible trustee are two of the most important aspects of creating a revocable living trust. Taking these important steps will help ensure that your beneficiaries receive what you intended.

Key Takeaways

• A beneficiary is the recipient of your life insurance benefits, financial accounts, and assets associated with your estate after you die.
• It’s important to hire a professional estate planner to create a plan and set up your beneficiary and trustee list.
• Set up a revocable living trust to avoid probate.
• Be specific about the details of your beneficiaries.
• Don’t forget to protect your digital assets and name beneficiaries for online assets.
• Evaluate and adjust your beneficiaries list when you have life changes.

What is a Beneficiary?

A beneficiary is a person or charity who will receive benefits from your life insurance policy, financial accounts, annuities, and estate. If you have life insurance, the beneficiary receives death benefits as stated in your insurance policy. For other financial accounts, the beneficiary receives the balance of assets in those specific accounts.

In your will, you’ll name an executor who will distribute the assets to the designated beneficiaries after you die. When you name a beneficiary to receive benefits from financial accounts or specific assets, the executor will distribute these as you requested without going through probate. With a living trust, the trustee has the fiduciary duty to manage and distribute funds after your death.

Tips To Ensure Your Beneficiaries Receive What You Intended

Follow these tips to make sure your designated beneficiaries receive the benefits you intended:

Hire a Professional Estate Planner

Drawing a will or making a living trust is important to ensure your family is cared for after your death. If you want the best possible estate plan, hire a professional estate planner with experience drawing up the correct documents and ensuring everything is in order. Your advisor will ensure you have contingencies in place if you become incapacitated, know how to protect your digital assets, and have named beneficiaries and an executor for your will or a trustee for your living trust.

Set Up a Living Trust and Name a Trustee

One of the best ways to ensure your beneficiaries get what you want them to have is to set up a living trust to protect your assets. A trust does not go through probate like a will does, is kept private so that the public does not see who the beneficiaries are, and allows the trustee to manage the assets over time. A will only becomes valid after your death, while a living trust is valid as soon as you sign it.

With a trust, the trustee can distribute or manage your assets while you’re still alive, and you can decide when they get distributed. For example, if you have children and want them to receive benefits before you die, at a certain age, or under other criteria, you can have that written into the trust. A revocable living trust gives you more flexibility with your estate and assets and can help you avoid some tax consequences and legal fees associated with probate.

Name Your Beneficiary or Beneficiaries

You can name one beneficiary to handle your benefits and estate or several with different designations. For example, you could choose one of your children to receive death benefits from a life insurance policy, another family member to get a set amount of money, or a grandchild to receive an inheritance once they reach a certain age.

Even though you name a primary beneficiary, consider naming backups in case your original beneficiary dies before you do. Remember, if you don’t name a beneficiary, the court will decide how to distribute the funds or put them back into the estate. If you have a trust without specific beneficiaries, the trustee determines how to distribute the finances, benefits, and assets.

Be Mindful of Beneficiary Designations

If you have a large payout from your life insurance policy, you’ll want to ensure your named beneficiary will be responsible with the amount of money they’ll receive. If you intend to have your benefits go to someone who may engage in overspending or misuse the funds, you can make the terms of them receiving the funds conditional.

Perhaps you’ll want the beneficiary to go through credit counseling or take financial management classes as a condition of receiving the benefits. If you feel strongly about naming a beneficiary but have concerns about them, work with your financial advisor or estate planner to add conditions the beneficiary must meet before receiving the funds.

Specify the Details

The more specific you are with details, the more you guarantee the beneficiary will get what you intended for them. With anyone you name, spell out their full name, including a suffix, and provide their social security number, address, and other pertinent information. The more specific you are about the person, charity, or trust, the more insurance you have that your intended beneficiary receives the benefits.

Put Life Insurance Benefits in a Trust

Be sure to add your life insurance when setting up your revocable living trust. If the policy is not in a trust, it’ll go through probate before your beneficiary receives the benefits. Going through probate incurs court costs and legal fees and often takes months before the funds are released.

When you die, your family will most likely need the benefits from your life insurance policy to pay bills, buy groceries, and cover mortgage payments. Having your life insurance in a trust can help your beneficiaries avoid costs associated with estate taxes. If you already have a trust, work with your financial advisor or estate planner to add your life insurance policy to it.

Protect Your Digital Assets

Digital assets include anything stored digitally that’s identifiable, discoverable, and has value. Digital assets can include websites, spreadsheets, data, images, manuscripts, videos, and anything with written consent. Blockchain technology, cryptocurrency, tokenized assets, and nonfungible tokens are all digital assets.

Put your digital assets and login information into your trust so that your beneficiaries can access your social media accounts, photos, website domains, and any other digital assets of personal or monetary value. Due to the sensitive and complex nature of protecting your digital assets, it’s vital to work with a professional estate planner who understands the value of these specialized assets, tax consequences, and how to create a digital asset trust.

Understand the Tax Consequences for Your Beneficiaries

When your beneficiary receives benefits from your trust, most of it becomes taxable. This depends on the trust’s structure, so you’ll need special IRS forms to report the income. Because the taxation of beneficiary benefits is complex, you’ll want to work closely with your tax accountant, financial advisor, and estate planner to ensure you understand your trust’s tax consequences. You may want to adjust your asset’s amount or structure to avoid burdening your beneficiary with taxes or legal fees.

Update Your Beneficiaries As Needed

As life changes, you’ll need to update your designated beneficiaries. If you have another child, get divorced, or remarry, you want to work with your estate planner to ensure you have current beneficiaries listed in your estate plan.

Having outdated names may cause your plans to go awry, so keeping your named beneficiaries current is essential. Remember that when you change a beneficiary in a will, you can either create a codicil to amend the will or write a new one. It’s often easier to write a new will when changing a beneficiary designation, depending on state regulations.

When you have a revocable living trust, you can work with your estate planner to update beneficiaries without creating a whole new one. However, once you die, your trust becomes irrevocable, and the trustee does not have the power to change any beneficiaries. It’s important to review and update your beneficiary list regularly for both your will and your trust.

Act Today To Protect Your Beneficiaries

You’ve worked to create a legacy, build your portfolio, and create assets you want to bequeath to those you care about. Working with a professional estate planner and financial advisor can help ensure your beneficiaries receive what you intended. Our team at Anderson Advisors can help you with your estate planning needs so that you’ll know that your beneficiaries are cared for. Contact us today to start your estate planning process and create a living trust you’ll feel comfortable with.