What Are Beneficiary Designations?

When transferring assets to loved ones, it’s not always ideal to transfer those assets directly via gift (while living) or via will (upon death). There are certain assets for which you can designate a beneficiary to take control of the assets upon your passing. Continue reading for a discussion of beneficiary designations, and call a qualified forensic genealogist for comprehensive and effective assistance identifying the proper heirs to an estate.

What is a Beneficiary Designation?

A beneficiary designation is a legal designation of an individual, estate, or entity as the party to receive assets upon your death. A beneficiary designation allows a person to dictate that a given individual will receive certain assets regardless of what the person’s will or living trust states. Beneficiary designations are often used when establishing certain types of financial accounts, retirement accounts, or insurance policies (especially life insurance policies).

A person can choose to designate an individual as the beneficiary of the asset, or they can choose their estate as the beneficiary. A life insurance policy that identifies the policyholder’s estate as the beneficiary, for example, would pay out benefits to the estate to then be distributed per the decedent’s will.

What’s the Purpose of a Beneficiary Designation?

Beneficiary designations can serve important legal and financial purposes. First of all, it tells the financial institution or insurance provider where the benefits should go. If you obtain a life insurance policy or retirement account and fail to name a beneficiary, the institution will have its own set of rules (as well as state law to follow) regarding where the funds will be paid. If you want your assets to go to particular parties, you need to set a beneficiary.

Establishing a beneficiary to certain accounts and assets can also help avoid unwanted tax penalties. For example, if you pass away with a retirement account in place, your retirement account typically goes to your spouse. If you are unmarried, then your retirement account will likely be paid out to your probate estate, which can significantly affect the estate’s taxes. The probate estate must pay out the assets from the retirement account within five years of death, which will accelerate the deferred income tax and consequently reduce the value of the account.

Moreover, there are reasons why it makes sense to establish a legal instrument as a beneficiary to pay out assets to a loved one rather than to deliver those assets directly. A special needs trust, for example, can be used to provide financial support to a loved one with a disability. The beneficiary to a special needs trust can continue to obtain government benefits such as Medicare or Social Security without the special needs trust assets affecting their eligibility, because they are not the owner of the trust assets and they have no technical control over the distribution of the assets. Naming that trust as the beneficiary to your retirement account or life insurance policy allows you to provide additional support upon your passing without affecting their eligibility for needs-based programs.

If you’re an estate administrator in need of qualified assistance identifying and locating missing heirs to an estate and for determination of heirship proceedings, or heir research services in order to satisfy due diligence requirements, contact the experienced and effective forensic genealogists at Von Langen, LLC at 561-748-2936.