Although the beneficiary designation is a crucial step in estate planning, it is handled separately from your actual estate plan. Additionally, if the provisions in your estate plan conflict with the beneficiaries you have designated, it could cause problems. Continue reading to learn everything you need to know about the will estate planning, help designate a beneficiary, estate planning, and how to keep these two types of documents from conflicting.
What is Beneficiary Designation?
Designating a beneficiary is deciding who will receive the property if the account owner passes away. Retirement accounts and life insurance plans are a couple of typical examples. A beneficiary will receive assets in an account when the owner passes away.
Another option is to designate your estate as the beneficiary. The asset has been transferred to the estate rather than a specific person. The investment will be divided by your Trust or Will’s provisions.
In December 2019, the SECURE act had passed by the Trump Administration. It established new guidelines for required retirement account withdrawals from inherited assets. Note that the term “designated beneficiary” now refers to a living individual who does not fit into one of the following five categories:
- Surviving partner
- A child who is younger than 18
- A person with a disability
- An individual with a long-term illness
- The person who was the deceased’s age within ten years
SECURE refers to anyone who falls into one of the five categories above as an “eligible designated beneficiary.” The term “designated beneficiary,” as used in this article, also refers to eligible designated beneficiaries.
The most important thing to remember about eligible designated beneficiaries is that they have extra advantages over designated beneficiaries, like more freedom when taking money out of their inherited assets. Again, this demonstrates how crucial it is to conduct thorough research before making beneficiary designations.
Different kinds of beneficiary designations
Beneficiary designations come in various forms, and the recent SECURE act has increased the variety. So far, we have discussed the distinction between a designated beneficiary and an eligible designated beneficiary. When managing your assets, keep the following beneficiary designation categories in mind:
- Eligible Designated Beneficiary (EDB): According to the 2019 SECURE Act, EDBs fall into one of five categories. Compared to other beneficiary types, these beneficiaries have a few advantages.
- One refers to any living person designated as a beneficiary but did not fit into one of the five EDB categories as a designated beneficiary (DB).
- A non-living beneficiary is a Not Designated Beneficiary (NDB). These can include trusts, estates, and charities.
- The named beneficiary is the primary beneficiary because they are the first to receive benefits.
Here, it’s crucial to remember that a named beneficiary isn’t always a living individual. For example, you can arrange for the transfer of your assets to your estate by the definition of an NDB (not designated beneficiary). In this situation, the Will specifies the inheritance of which assets, how much and other details.
Will estate planning help designate a beneficiary?
Have you designated a beneficiary on your savings, retirement, and life insurance policies? It could be a mistake if you don’t. Your estate automatically becomes the beneficiary if there is no establishment of a designated beneficiary. This might go through a drawn-out, pricey, and cumbersome probate procedure.
Make sure to name a backup beneficiary in your beneficiary designation if the primary beneficiary passes away. Again, you are being as specific as you can also help. Make sure to call your beneficiaries specifically (rather than just “my kids”) and state how the asset will be divided and distributed.
How does estate planning help Designate a Beneficiary?
To designate a beneficiary, you must adhere to the instructions provided by the entity holding the asset. Sometimes it will be a simple procedure, like just filling out an online form. However, the business typically asks you to designate a beneficiary when opening the account. Therefore, ensure you have the intended beneficiary’s complete legal name and contact details.
Remember that designated beneficiaries take effect upon your death and may unintentionally supersede any provisions in your Will regarding the inheritance of assets. Therefore, it is beneficial to utilize online resources that make reviewing and updating your beneficiary designation and estate planning paperwork more straightforward.