Estate planning involves making decisions about how certain items will be distributed after you die, when such distribution should occur, and who should benefit from your assets.
Many people understand that estate planning involves determining the value of your assets and deciding how such assets should be managed in the event of death or incapacity. But it is especially important to ensure that you identify which individuals you would like to benefit from money or property that you decide to pass down.
A beneficiary is anyone you name in your estate plan to benefit, in some way, from your estate. You may decide to explicitly name these individuals to benefit from a specific part of your estate plan like life insurance policies, retirement plans, social security disability, or savings accounts.
Regardless of whether you decide to name beneficiaries in your policies or plans, you are still able to name such individuals in your Last Will and Testament, which is a document that establishes how you would like your assets to be distributed after you pass away.
Aside from receiving a portion of the monetary value, named beneficiaries may be conferred certain rights. These individuals may have the right to be informed about basic information regarding the estate. This information often revolves around accounting facts and updates.
Additionally, named beneficiaries may be entitled to know about dates regarding distributions or delays. They may also be updated if the estate is involved in any litigation or legal proceedings.
Failing to name beneficiaries in your will may subject your assets to be distributed and managed according to your state’s intestacy laws through a probate proceeding.
It is important to note, however, that there are two different types of beneficiaries that can be named in a will or trust.
A primary beneficiary is an individual or organization that would be first in line to receive any assets enumerated in the will or trust. You can name multiple individuals as primary beneficiaries, while also designating percentages toward each.
If a primary beneficiary was legally incompetent, unable to be located, uninterested in receiving the inheritance or deceased, then a contingent beneficiary may receive the allocated benefit. A contingent beneficiary, thus, is an individual or organization that would be second or third in line to receive the inheritance.
Regardless of whether beneficiaries have been named, however, a court-appointed guardian ad litem may be appointed to manage the inheritance if such beneficiaries are minor children – until the child reaches an age of legal capacity.
Who should be named a beneficiary of your estate?
Deciding whom to name as a beneficiary of your estate is an extremely personal and important decision you’ll have to make. Keep in mind, however, that your decision will definitely depend on a variety of factors – including which assets you plan to distribute, any financial dependents you have, among other things.
Although most people tend to name their spouse and children as beneficiaries, you should know that you can technically choose whoever you’d like to benefit from your estate.
If you were to pass away while your children were still minors, then you will have to do more than select them as primary or contingent beneficiaries. Specifically, you may want to establish guardianship for your minor children.
A legal guardian would merely be responsible for managing any assets owned by your minor children. Guardians may be able to use assets from the estate to cover any of your children’s expenses, but they would not be able to use estate funds to fund personal expenses and benefits.
Another option executed by individuals planning to leave assets to minors includes creating a trust. With a trust, assets would still benefit your children but be managed by a trustee. The trustee does not necessarily have to be the same as the guardian you choose to appoint. Instead, the trustee would manage the trust until your children reach an age of adulthood or comply with any stipulation you might have included in the arrangement.
How are beneficiaries paid upon distribution from your estate?
During probate, a short-term account will be established for your estate. This temporary account will act as an operating account and receive any income and pay out any expenses on behalf of the estate. Additionally, it will make distributions to beneficiaries of the remaining account balance once all administrative expenses have been paid.
Estate planning often varies from individual to individual. It may involve drafting a will that will be enforced after you pass away or upon establishing a trust that becomes effective once created. Common to all estate planning, however, involves appointing beneficiaries who will be entitled to receive distributions from your estate assets after you pass away.
It is important that you consult proper legal counsel and experts about your estate planning needs. Our experienced estate attorneys at Mendez and Mendez Law are eager to discuss your situation and work with you to best serve your needs. Reach out to meet with us today.