Deciding which people should inherit your assets is a very personal decision. Who has been important in your life, and who you want to leave something to, is a decision that ultimately can be made only by you. Where a lawyer can help is in advising how these assets should be passed to your descendants.
I’ve put together a list of things to keep in mind when naming beneficiaries:
- If you leave something to someone under a will they will not inherit right away. When naming beneficiaries in a will they do not receive the money right away. Or even that quickly. By having a will, as opposed to a revocable living trust based estate plan, you are forcing your beneficiaries to wait for probate to be complete until they inherit. In New York the probate process takes about 9-18 months. If your estate is complex, or someone objects to their inheritance, probate can take years. As bad as making beneficiaries wait to receive their money probate actually decreases how much money is available to them because of the fees involved. Probate typically costs approximately 5% of the gross value of your estate. With a revocable living trust based estate plan your beneficiaries avoid probate, and the costs associated therewith, entirely. A trust keeps your loved ones out of probate and avoids probate fees.
- Certain types of benefits are paid directly to your beneficiaries and do not go through probate. The money paid to your beneficiaries in a life insurance policy, as well as the money paid to them via a retirement account, do not go through probate. Rather they pass directly to your beneficiary. This saves a lot of time and expense. When something happens to you your family may desperately need access to money and life insurance and retirement accounts provide that. You need to keep your beneficiary designations updated. It’s something that’s easy to forget about, the years pass, and the beneficiaries may no longer be who you want them to be.
- Leaving assets directly to minor children is asking for trouble. If you leave money directly to a minor child, and by directly I mean not in trust, you are forcing those assets to go through probate. The law does not allow a minor to inherit outright. You will need to have either appointed a guardian prior or the court will have a drawn-out hearing to appoint one on your children’s behalf. This costs time and money and decreases the amount of money left for your children. Even if you have appointed a guardian, but not put your children’s inheritance into trust, there’s the issue of an 18 year old kid inheriting a large sum of money. I’m not sure how you were at 18 years old but I know I wasn’t mature enough to handle it. By putting your child’s inheritance in trust you not only protect it from creditors, predators, and ex-spouses, but also you protect your children from themselves until they are mature enough to handle it.
- Some items to consider with retirement account and life insurance beneficiaries. Leaving the money you have in a retirement account or life insurance policy outright to someone has its own problems. The majority of money left outright in cash to someone is wasted in a short period of time. It’s too easy to spend money that’s just sitting in your bank account. It’s also not a good idea to name your estate as beneficiary because you’ll lose the ability to take advantage of IRA stretch provisions. It’s a fact that money left in trust lasts longer, is treated with more reverence, and is protected from creditors and predators.
- Don’t leave everything to one beneficiary and ask them to pay the money out to others. If you want several people to inherit your life insurance money or retirement account assets you should not just name one person to receive your money with the understanding that they will pay that money out to others. As honest as the person may be money does strange things to people. Life insurance and retirement accounts allow you to designate multiple beneficiaries each of whom will receive a stated percentage of the retirement account or life insurance proceeds. If you’re trying to “hide” money from the government because you have a special needs child that requires government benefits there are better ways to go about this. A special needs trust was designed for this very purpose.
Every day we help families just like yours grapple with estate planning and related issues. Call us today at (646) 736-7539 and we can schedule a time to meet and discuss your particular facts and circumstances and how best to accomplish your estate planning goals. Estate planning is a gift you are giving to your loved ones that retains its value long after you are gone.