The Forgotten Step in Estate Planning: Beneficiary Designations

You may have thought that you were done with your estate planning when you executed your documents, but there is a final, and oftentimes forgotten step in completing this process: you must ensure that you have completed all your beneficiary designations.

What are Beneficiary Designations?

Many people might not realize that their will may not control who inherits all of their assets when they die. There are many assets that pass by beneficiary designations, which is a form filled out with the company holding the asset. A beneficiary designation form names who will inherit the asset upon your death.

Beneficiary designations allow you to transfer assets directly to individuals, regardless of the terms of your estate plan. Beneficiary designations are often made when a financial account, retirement account, or life insurance policy is established. Completing these designations overrides a distribution set forth in a will. If you are changing or updating your estate planning documents and don’t also change or update your beneficiary designations on non-probate assets, distribution upon your death may not match your intent.

This is why it’s important to check the beneficiary designations for your life insurance policies, bank accounts, brokerage firm accounts, retirement accounts, and other assets annually. If you haven’t submitted the proper forms to designate beneficiaries, you should make sure to submit those documents. Lastly, if you have submitted your beneficiary designation forms, it’s equally important to make sure to review them annually to make sure they are up to date.

Are there different designations?

There are numerous different beneficiary designations in Arizona. These can include:

• Individual retirement accounts (IRAs)
• 401(k) plans
• Annuities
• Life insurance policies
• 529 Education Accounts
• Bank accounts or investment accounts with transfer on death (TOD) and payable on death (POD) designations
• Title to your automobile
• Real Property via a Beneficiary Deed

Why set up a beneficiary?

One of the biggest advantages of completing a beneficiary designation is that it ensures that certain accounts and assets avoid probate. When an asset allows for a beneficiary designation, these assets are paid to, or ownership is transferred to, the designated beneficiary or beneficiaries upon your death.

For example, life insurance policies can have beneficiary designations, allowing the policy to be paid directly to a named beneficiary. Retirement accounts, such as IRAs and 401(k)s, also commonly allow for beneficiary designations. In Arizona, you can also complete a beneficiary deed for real property and a beneficiary for transfer of title with the Motor Vehicle Department (MVD) for your car. Finally, many bank accounts and brokerage accounts allow the account holder to set up a “transfer-on-death” or “payable-on-death” arrangement, which means that ownership of the account passes to the named beneficiary, or the account is liquidated, and the money paid to the beneficiary.

A word of caution, if you name your estate as the beneficiary and then depend on your will to parcel out assets to the intended heirs, your estate must go through the potentially time consuming and expensive process of court-supervised probate. It’s advisable to contact an attorney and a tax specialist prior to naming your estate as a beneficiary.

Just like your will, beneficiary designations should be reviewed annually and especially any time the account holder experiences a life-changing event such as the death of a loved one, divorce, marriage, or change in financial status.

How to designate a beneficiary?

Designating a beneficiary can be a time-consuming process, as it may require you to contact numerous institutions that hold your assets. However, it’s a necessary step to ensure that all your assets are protected. Following the six steps below may help streamline the process for you:

1. Make a list of all your assets that are subject to beneficiary designations (reference the “different designations” list above)
2. Contact each account holding institution and request a beneficiary designation form (many banks and financial institutions allow you to complete these forms online)
3. Submit your beneficiary designation forms to the correct institution (financial institution, Bank, MVD, County Recorder, etc.)
4. Keep a copy of your completed designation forms with your other estate planning documents
5. Seek advice from an experienced estate planning lawyer
6. Review your designations periodically and make any necessary changes

Contact Us

Contact Brown & Hobkirk, PLLC today to schedule a free consultation to learn how you can utilize beneficiary designations to maximize assets that pass to your heirs. Control your legacy with a carefully crafted estate plan by visiting us at one of our conveniently located offices in Scottsdale, Phoenix, Peoria, Chandler, or Tucson.