Let's Talk Beneficiaries

When developing an estate plan, it is important to know what you can do to pass assets directly to beneficiaries. This will help you better decide which estate plan route is appropriate for you when deciding between a Will and a Trust. An attorney should be consulted for the estate plan process and to help you decide which route best fits your specific situation.

Andrea J. Zoeller, CFP®

Jun. 9th, 2019

Holding a baby's hand
Holding a baby's hand
Let's Talk Beneficiaries

When developing an estate plan, it is important to know what you can do to pass assets directly to beneficiaries. This will help you better decide which estate plan route is appropriate for you when deciding between a Will and a Trust. An attorney should be consulted for the estate plan process and to help you decide which route best fits your specific situation.

At Mersberger Financial Group, we make sure we are covering all the areas that pertain to a client’s financial life. One of those areas includes knowing some of the basics around estate planning and establishing beneficiaries correctly on accounts. This month’s article features some facts and tips to know when establishing beneficiaries.

Which accounts allow for beneficiaries? Retirement accounts such as 401(k)’s, IRA’s, and Roth IRA’s allow beneficiaries to be attached directly to the account. The same holds true for life insurance policies. Nonretirement accounts, referred to as Non-Qualified accounts, can attach beneficiaries by utilizing a Transfer on Death feature. In some cases, real estate assets can attach a beneficiary by utilizing a Transfer on Death feature. Bank accounts can attach a beneficiary by utilizing the Payable on Death feature. By attaching a beneficiary directly to an account, the beneficiary receives the assets directly by avoiding the probate process.

What is a primary and contingent beneficiary? A primary beneficiary is listed first and is the recipient of assets if the account owner passes away. A contingent beneficiary is listed second and is the recipient of assets if both the account owner and primary beneficiary have passed away. Most often a spouse is listed as a primary beneficiary and in the State of Wisconsin, you must get a spouse’s consent to list a beneficiary other than a spouse as a primary beneficiary. You do have the ability to list multiple people as beneficiaries directly to the account at the primary and contingent level (with the spousal rule exception) and you may divide their share at any percentage of your choosing.

What if my beneficiary is a minor child? Typically, we wouldn’t recommend putting a minor child on an account as a beneficiary. Instead, you can establish a testamentary trust in the Will which is a trust that is formed out of the Will once the testator (person establishing the will) has passed away. Within this testamentary trust, you can dictate how you would like the assets to be distributed to the minor child by specifying the age and rules in which he/she can receive the assets. You would also appoint a trustee to manage these assets until the minor child reaches the age of majority. Also note that multiple testamentary trusts can be created for multiple children if necessary.

What does per stirpes mean? Per stirpes is an option that can be chosen when establishing a beneficiary which is Latin for “by roots.” It means if you choose that option on a beneficiary and that beneficiary passes before you do, their portion will flow through to their blood heirs. For example, if Jon Doe (a widow) lists his sons Jim Doe and Josh Doe as primary beneficiaries with “per stirpes” and Jim passes away before Jon, Jim’s portion of the account will pass to his blood line children. Without “per stirpes,” Jim’s portion would flow to the only other beneficiary listed, his brother Josh.

What if I leave my beneficiary blank? If a beneficiary designation is left blank, it will flow through to your estate and be distributed per the terms of your Will. If a Will hasn’t been established, the State will step in and do their best to distribute assets according to the family members that haven’t preceded you in death.

I hope this article helps you to organize your financial life.

Have questions? Contact us.

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