Understanding Beneficiaries & Estate Planning

No matter where you are on your estate planning journey, it’s important to understand the important role of beneficiaries and the options you have for who benefits from your estate and how your assets are divided.

I’m experienced Estate Planning Attorney Paul Margerie. At Margerie Law, I help people just like you protect their families and their future with expert advice and services in the areas of wills, trusts, powers of attorney, and all other facets of estate planning law.

Read on for my guidance on understanding beneficiaries, a key aspect of estate planning. For questions or to schedule a consultation, contact me at (414) 254-4784 today.

What is a Beneficiary?

“Beneficiary” is a legal term for a person or organization legally designated as inheritor of a will, trust, life insurance policy, retirement account, or other asset. A beneficiary may be someone you select, as you would with a life insurance policy or retirement account. A beneficiary may also be someone who you have not actively named, but who is legally eligible to inherit an asset or assets from you, such as a spouse or child.

Inheriting assets as a beneficiary usually has tax consequences, so the advice of an experienced estate planning lawyer is valuable. The person naming a beneficiary also may have the opportunity to put stipulations on how the assets are disbursed. For example, the beneficiary of a trust may have to reach a certain age to access the funds contained therein.

A similar term you may be more familiar with is “heir,” though that word is used in estate planning to indicate a family member who inherits from an estate when a person passes away without leaving a will.

Understanding Beneficiaries by Type

Your Spouse. Many assets contained in your estate will automatically pass to your spouse should you pass away first. Anything held in joint ownership with your spouse will pass automatically to them, including real estate, bank accounts, automobiles, etc. If you want your life insurance policy and retirement accounts to pass to your surviving spouse, you will need to name them specifically. It is always smart to construct and discuss your estate plan together with your spouse if at all possible. If you are divorced, you will want to ensure that your beneficiary information has been updated to suit your current preferences.

Your Children. The biggest estate planning consideration when providing for children is whether they are adults or minors. It is critical to name a guardian and plan for the provision of care for your minor children in the event of your passing before they reach the age of 18. A trust can be a useful tool in this instance, as it allows you more control over how and when the assets contained therein should be distributed. You will also want to consider opening a 529 educational savings plan for them to use specifically for education-related expenses. If you are planning to leave assets to adult children, you have many things to consider, including life insurance, long-term care insurance, retirement plan rollovers and tax implications, and how you want your assets divided among multiple children (if applicable). Providing for children with disabilities or other needs with a special needs trust may be something else you need to think about. Contact an experienced estate planning attorney like me, Paul Margerie, with questions on any of these topics.

Grandchildren and Other Relatives. Providing for grandchildren comes with many of the same considerations as providing for children, including the differences between planning for minors and adult children. When it comes to leaving assets to more distant relatives or those who are not related to you, you will want to think about probate. Probate is the legal process of validating the stipulations outlined in a will and distributing assets to beneficiaries. While distributing assets to immediate family does not usually involve a lengthy probate process, other types of beneficiaries may get caught up in the red tape. You might think about making gifts to these individuals while you are still living to take advantage of gift tax exclusions, or by making contributions to their educational or medical expenses, which may allow you to avoid gift tax altogether. No matter what, consult an experienced attorney with questions about naming beneficiaries.

Your Favorite Charitable Organizations. Many people want to support one or more of their favorite charitable causes as part of their legacy, and there are many estate planning strategies to help you do so in a smart way. It is critical to seek the advice of an experienced tax expert or estate planning attorney in this instance so you can ensure you benefit from the many tax benefits of charitable giving. Depending on the size of your gift, you may want to look into donor-advised funds or establishing a private foundation to benefit your cause. Finally, it is essential to understand the full scope of your estate and how giving to charity may impact the future financial security of your other beneficiaries.

Your Best First Step…Talk to An Estate Planning Attorney.
Failure to name a beneficiary can make the process of distributing your assets after death extremely complex. But selecting and coordinating beneficiaries can be confusing and stressful. For expert advice and guidance, contact me, Wauwatosa Estate Planning Lawyer Paul Margerie. I help individuals and families across the region, including in Milwaukee, Brookfield, Elm Grove, Waukesha, and beyond, with all their estate planning needs. I look forward to hearing from you.