Your Estate Plan and Beneficiary Designations

Posted by Sheri Tucker, M.S., J.D.Apr 01, 2024

When working with clients, a common question I'm asked deals with beneficiary designations.  What does it mean to designate a beneficiary?  If I named a beneficiary, do I replace them with a Trust?  What happens if my beneficiary predeceases me?  Let's look at some information on beneficiary designations to help you with estate planning.

What are Beneficiary Designations?

A beneficiary designation involves naming the person who will directly receive an asset in the event of the death of its owner. Assets that allow for beneficiary designations include insurance policies, retirement accounts such as 401(k) plans, annuities, and other financial accounts. Trusts also require beneficiary designations. You can also choose beneficiaries in your Last Will and Testament. 

Beneficiaries are slightly different from heirs. You choose your beneficiaries.  Heirs are those who are related to you by law.  Heirs are those who inherit the property of a person who dies intestate, or without a will.  An heir may be a beneficiary; however, a beneficiary is not necessarily your heir.

Designating a beneficiary ensures the named beneficiary directly receives the asset, rather than it passing to the estate and going through probate, which can cost significant time and money. 

What are the types of Beneficiaries?

Different types of beneficiaries exist such as eligible beneficiaries, designated beneficiaries, and non designated beneficiaries and contingent beneficiaries..

Eligible Designated Beneficiaries

Eligible designated beneficiaries include:

  • Spouses
  • Children of the original account owner who is a minor under 18 years of age
  • Individuals with a disability
  • Chronically ill individuals
  • Individuals within 10 years of age of the deceased

Eligible designated beneficiaries have additional rights to designated beneficiaries.

Designated Beneficiaries

A designated beneficiary is any living person who does not fall into the above categories. This may include a friend or extended family members, such as elderly parents or a sibling.

Not Designated Beneficiaries

A not designated beneficiary is a non-living beneficiary, such as a charity, trust, or estate.

Contingent Beneficiaries

A contingent beneficiary is a “backup” beneficiary who receives the asset in the event the primary beneficiary is unable to receive it.  For example, a living trust may be listed as a contingent beneficiary on an IRA.  Failing to name a contingent beneficiary may result in your asset going through probate.

What Documents in an Estate Plan Need Beneficiaries Listed?

Most non-probate assets and documents require at least one beneficiary to be listed. This includes:

Typically, non-probate assets are not placed in a Will because a Will goes through probate. Beneficiaries will override anything else, too, like other heirs in a Will.

Naming the Wrong Beneficiary

The identity of a named beneficiary may not be clear––for example, if several people in the family share the same or similar name. Names may also change as a result of marriage or divorce. Always confirm the correct legal name of your intended designated beneficiary and ensure you update the document to reflect any name changes. 

“All My Children”

Designating “all my children” can create challenges. For example, if a child beneficiary dies before their parent, it may be unclear as to how their portion should be distributed. It may be divided between the surviving children, or instead, pass to their offspring. To avoid this issue, be specific when naming a beneficiary.

Naming the Trust as a Beneficiary

Why would name a living trust as a Contingent beneficiary?  Often, clients forget to remove a deceased spouse as a beneficiary.  Naming the trust keeps the IRA out of probate.  Another benefit may be to preserve a beneficiaries share in the trust as his / her separate property. Another benefit may be to protect minor children or young adults with special needs.

Another example concerns life insurance policies.  Naming a trust as the primary beneficiary of life insurance policies is important. Again, often people forget to change beneficiaries if the person predeceases the policy owner.  Naming the trust as the primary beneficiary keeps the policy out of probate.  For those who only have a last will and testament for an estate plan must remember to update and change beneficiaries on financial accounts and life insurance policies

Contact Your Estate Planning Attorney Today

You have worked hard and have planned well.  Now you want to make sure your loved ones are secure in the event something happens to you. At Tucker Legal d/b/a Your Estate Ally, Sheri Tucker is an estate planning attorney in Missouri.  She helps families create comprehensive, inclusive estate plans that address all possible situations and challenges across St. Louis, St. Charles and Jefferson Counties. She makes every effort to help you and your beneficiaries get what you intend to achieve through your estate planning. Contact Sheri either by filling out the online form or calling 314-332-0011 to schedule a complimentary consultation.