If you have any assets or property that will exist after your passing, then you need to prepare a will. Though crafting a will can be a straightforward process, there is some planning and thought involved. So, before you sit down to create and sign your will, there are many decisions you should think through to help the planning and development run smoother. Namely, one of the most vital decisions to make is your beneficiary designation.
Designating beneficiaries in your will ensures that your wishes are respected and carried out appropriately. Technically, you can leave these decisions to the executor of your will, but if you have specific goals in mind or a desired legacy you would like to leave, it is best to have a plan in place and, preferably, well before your passing.
Are you unsure of what and who beneficiaries are? Here’s a simple breakdown.
What is a beneficiary?
A beneficiary is a person or entity who is designated to receive your assets, wealth, or property. This person does not take on any responsibility to execute your will or distribute your assets. They need only to receive the benefits designated to them. Your designated Executor will execute the will. The Executor can also be named as a beneficiary, but it is not required. If you do not name an Executor, a beneficiary can petition the court to be nominated as the executor.
To designate a person as a beneficiary, it is important to include their identifying information in your will, such as their full legal name, social security number, and address where they can be reached.
What are the types of beneficiaries?
There are two types of designations you can make: primary and contingent beneficiaries.
When you name someone as a primary beneficiary, they are the first beneficiary in line to receive your assets. You do not have to pick one single person or organization to be a primary beneficiary; you can split your assets among several primary beneficiaries if you choose. Typically, these designations are made as percentages rather than specific dollar amounts, especially for assets or bank accounts with amounts that fluctuate.
In cases where a primary beneficiary cannot be reached or if they have passed away before your assets have been distributed, your will should include a contingency plan. This is achieved through naming contingent beneficiaries. A contingent beneficiary, also known as a secondary beneficiary, is the next beneficiary to receive a portion of your assets if a primary beneficiary is not reachable. There are several ways to set up a contingent beneficiary. For instance, if you have several primary beneficiaries, you may choose to keep your estate split evenly among them, or you may choose to have the unreachable primary beneficiary’s percentage split among contingency beneficiaries.
Who can be a beneficiary?
You have many options when deciding who will receive your assets and estate when you’ve passed.
If a person is married when they pass away, it is commonplace that their spouse will receive the entirety of their assets. This is especially typical when most assets are joint or shared or if it is expected that the remaining spouse could live for a long time.
Family or Friends
Any family member, friend, or acquaintance can be named as a beneficiary in a will. In many cases, parents leave assets to children, siblings, nieces or nephews, and other close relatives. Likewise, if you have long-time family friends that you wish to take care of or leave assets or specific heirlooms to, this should be documented in your will.
It is important to note that in many states, a minor child cannot own property therefore it is also crucial to designate a trustee within your will that protect and maintain their portion of assets until they are of legal age.
Do you wish to leave a legacy with your favorite charity or nonprofit? Or perhaps you wish to use your estate to set up a scholarship fund at a university? You can designate these terms in your will. It is quite common for testators to leave assets to a charity that is near and dear to their hearts.
It is not typical to designate the government as a beneficiary in your will. But if the amount of your estate and assets equals a certain amount, $12.92 million in 2023, then your estate is subject to an estate tax. This estate tax includes the death benefit of your life insurance policy if you are the owner of your policy and the assets in your retirement accounts. If your assets equal less than this amount, then your estate receives a federal estate tax exemption.
Designating Your Beneficiaries
Are you ready to plan and create your will so that there is a legal document in place when you pass but are you finding it difficult to understand all the complicated legal jargon surrounding an estate planning document? Do not worry, you are not alone. There is an entire segment of law practice that is dedicated to these matters because navigating the waters can be quite confusing.
At The Legacy Lawyers, we specialize in estate planning. We can walk you through all of your options and answer every question that arises during the estate planning process.
Call today to schedule a consultation.