It may sound simple – “who should get my assets? – but naming beneficiaries is often an under appreciated step in effectively transferring wealth. Making a thoughtful, informed selection when it comes to your beneficiaries can save time, frustration and even money.
Every family and financial situation is unique, but here are a few beneficiary choices that merit an even higher level of consideration:
- Naming a minor. Generally, a minor will inherit when he or she turns 18, so think carefully about whether you’re comfortable with an 18-year-old having access to that money. Your advisor can help recommend strategies and structures – such as trusts – that can provide additional guardrails, should you want them.
- Naming a disabled or special needs individual. If your beneficiary receives government aid because of a disability, a large inheritance could unintentionally disqualify him or her from receiving future aid. Learn more.
- Naming an estate. Distributions to an estate go through probate and carry greater tax burdens than naming an individual beneficiary, so make this choice carefully.
- Not considering addiction. It’s a challenging topic, but you should consider how your plan would function if your beneficiary developed a drug or alcohol problem – particularly given a family history of substance abuse. If a possible concern exists, have a conversation with your advisor who can help explain your various options in more detail.
- Overlooking international implications. Due to differences in countries’ taxation, reporting and other laws, international families with heirs in the U.S. should take special care when crafting their financial plans.
- Taking a “set it and forget it” approach. There’s a chance that the beneficiaries you named 10 years ago are no longer who you’d choose today. Review all beneficiaries regularly – especially in light of life events like marriages, divorces, births, adoptions, deaths and changes in residence – to make sure they still reflect your current wishes.
- Leaving it blank. Without designating beneficiaries, your hard-earned legacy will be divvied up according to federal or state law, or by the default plan document used in your retirement accounts. Make sure it’s your wishes that are carried out by appropriately naming and documenting your beneficiary decisions.