Designating your beneficiaries is one of the critical steps in the estate planning process. Your “beneficiaries” are those individuals or entities, like charities, who will receive your property after you pass away. When you choose your beneficiaries, you are choosing who will benefit from your legacy and further your values after death.
Every step of the estate planning process should be completed with your beneficiaries in mind, as your choice of beneficiaries could have a rippling effect on everything from taxation issues to the potential for legal challenges. Given their importance, we recommend discussing beneficiary designations in Boston estate planning with an experienced attorney. The attention of a legal professional can help keep your family and loved ones out of conflict after your death.
When a person dies, there are many legal mechanisms that could ensure their property is passed on to the beneficiary of their choice.
Not all estates will have designated beneficiaries. For example, a person who dies without a last will and testament will not have designated beneficiaries. In these cases, state law will determine who gets what from the estate.
There are numerous estate planning tools and financial assets that allow for beneficiary designation. From wills to trusts, all of the common estate planning tools provide for a specific individual or group to inherit. There are also beneficiary designations on other assets such as payable-on-death bank accounts, retirement accounts, or life insurance policies.
It is common for a person creating an estate in Boston to have several beneficiaries. In some cases, the beneficiaries identified in one document could differ entirely from those named in another asset. These conflicts are important to understand and avoid.
Many people will attempt to carefully dole out their assets throughout the estate planning process. However, it is common for estate plans to fail to address certain assets, particularly those added after the plan is created. When this occurs, these assets could be forced into probate. This outcome could leave the designated beneficiaries in a will or trust unable to recover the assets, as state law will dictate how they are to be distributed.
A residual clause could help protect your beneficiaries from an oversight. These clauses designate a beneficiary to receive all of the assets not otherwise covered by the will or trust. This catch-all provision could ensure certain assets do not accidentally fall out of the estate. In other words, the residual beneficiary is there to be the “everything else” beneficiary. After all specific transfers are made, the residual beneficiary stands to inherit “everything else.”
For many people, the priorities surrounding their chosen beneficiaries can change over time. Relationships begin and end, and family members are born or pass away. Given these changing circumstances, it is important to regularly update the beneficiary designations within a Boston estate plan.
The failure to make these updates could endanger a person’s wishes. For example, the failure to update beneficiary designations following a divorce could leave an ex-spouse in a position to inherit most of a person’s estate upon their death.
In some cases, a beneficiary could pass away before the creator of an estate plan. When this happens, it is important to update the plan to address the issues, or else it could result in unintended consequences when it is time to distribute the estate’s assets.
Remember, the estate planning documents like your will or your trust are not the only documents that need to have beneficiaries updated from time to time. It is equally important to review your life insurance beneficiaries and beneficiaries on your retirement accounts. If these beneficiary designations aren’t updated, regardless of the status of your estate plan, the contracts you have with the insurance company or the retirement plan custodian will control who gets what from those assets.
The process of designating beneficiaries is a crucial element of estate planning. When selecting the beneficiary of a trust, will, or other planning tool, it is important to remember that your choice could impact the entirety of your estate plan. Let a skilled Boston attorney review your designations and assist you with the estate planning process from start to finish. Call today to learn more.