BENEFICIARY DESIGNATIONS: The LEAST EXPENSIVE Type of Estate Planning.
- Ruben Martinez
- Apr 2
- 5 min read
NOW, you might be too young, work too much, or just haven't had time to think about it, but there is something out there called "beneficiary designations" that you can use in lieu of a trust or will, and that will literally cost you nothing, other than half an hour of your time.
Sound interesting? It should.
Here's the breakdown: Beneficiary Designations go by many names: transfer on death (TOD), payable on death (POD), inheriting party, in trust for (ITF), etc. Whatever its called a beneficiary designation has one purpose, and that is, to get your property into your beneficiaries hands once you die, seamlessly and without court involvement.
Sounds amazing right? It should, because the alternative is probate, and lets be honest folks, probate sucks! So now that you know the purpose and function of a beneficiary designation, lets talk about what sort of property you can utilize a beneficiary designation for, and how beneficiary designations tie into estate planning, and lastly, just how durable are beneficiary designations in light of life's everyday challenges and uncertainties.
PROPERTY YOU CAN DESIGNATE A BENEFICIARY FOR
The short answer, almost EVERYTHING. Now for a more detailed answer: bank accounts, real estate, retirement accounts, life insurance policies, vehicles, stocks and bonds, cds, brokerage account, money market savings accounts, annuities, you get the point.
The problem is that unless we're talking about life insurance or a retirement account, you probably either have not been asked or did not know you could name a beneficiary for some or all of the assets listed above. You would think financial institutions would hoot and holler and educate you, but the reality is that few do. So what do you do? You get the proverbial bull by the horns and you do it yourself, which incidentally is a relatively easy and pain free process. Just contact the financial institution that holds the asset and tell them that you are interested in naming a beneficiary for this account/policy. This will usually involve filling out a 1-3 page form, that you will need to then sign, and then submit. BAM! -That's it!
Second, rinse and repeat this process with each and every asset you own that permits you to name a beneficiary, which as stated above, is virtually all of them.
Thereafter, you can rest easy knowing that when you die, whether that happens suddenly and/or tragically or as you always imagined, riding off into the sunset, your property/estate has been taken care of.
HOW DO BENEFICIARY DESIGNATIONS TIE INTO ESTATE PLANNING
Beneficiary designations are an integral part of estate planning and trust building. Depending on the asset, re-titling it into the name of your trust might not be the best option. Like all things, there is good and bad with everything. The same is true with estate planning.
So how do beneficiary designations fit into all this? Beneficiary designations are kind of like that kid at school that everybody likes and no one has anything bad to say about. Further, they are safe and don't cause all the fuss that changing ownership can and often does create. Simply put, beneficiary designations are SWITZERLAND.
UNLIKE changing ownership, nothing fundamentally changes when you name a person or entity (like a trust) as a beneficiary of an account. Everything just kind of goes on as usual. Neat, right?
Often times, I will create a trust for my clients and put the big things inside it, like home and real estate. But what about their personal property (bank accounts, vehicles, stocks/bonds, etc.), do we change the title to all of these assets and just let the trust own them? NO. For reasons beyond the scope of this article doing this could cause a big headache for my clients.
Instead, we make their trust the primary or secondary beneficiary of the aforementioned accounts, this way its business as usual, no fuss, no headache, and the best part is, all of these accounts now have a place or person to go to, without the need to file a single court document.
HOW DURABLE ARE BENEFICIARY DESIGNATIONS
If you are somehow able to control your destiny, and the destiny of others, then beneficiary designations are foolproof, and everything else, including trusts and wills, are obsolete. That said, no one is in control of their destiny, and unfortunately or fortunately, depending on how you look at it I guess, none of us know how or when we're going to die. The same is true when it comes to our loved ones, children, and for purposes of this article, beneficiaries. So why is us not knowing important? Because the effectiveness of beneficiary designations depend on your beneficiary outliving you.
If I name my daughter as the beneficiary of my house by executing a transfer on death deed and she dies before me, then I'm, or I should say my estate, is back to square one, and its like I never had a beneficiary designation in the first place. The result, my house has to go through Probate. So, how do I prevent this from happening? You can't, at least not with a beneficiary designation. To prevent against the reality that one of your beneficiaries predeceases you, you'll need a trust. Why? Because a trust is the only instrument other than a will (but remember a will has to go through probate, and remember probate sucks) that gives you the ability to name alternate beneficiaries of your property.
This way, even if your primary beneficiary (i.e. "first choice") predeceases you, your property will automatically go to your second, or third, or fourth choice, and never have to spend a minute in probate court. Pretty cool, right?
THUS, beneficiary designations although very cool in their own right, do have a major limitation when it comes to your beneficiary dying before you.
In summary, beneficiary designations are the least expensive way to plan your estate. However, it is imperative to do your own research when deciding what route you're going to take (trust, will, beneficiary designation, or a combination of all three), while also understanding the inherent risks and rewards associated with each. Once you do this, you are ready to take action. Good luck and until next time my legalites.
-RJM LAWYER
[DISCLAIMER]: in no way should this article be construed as legal advice. You should always consult a licensed professional before making substantive legal decisions. This articles aim is at humor and providing marginal legal advise on variety of legal matters. By sharing said information in no way do I become your attorney or is a client-attorney relationship formed.
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