If you have started a retirement account or bought life insurance, you may wonder how to properly name a beneficiary. Designating a beneficiary is very important because it can potentially save your estate a lot of money on taxes and probate court fees.
What Happens If You Do Not Designate a Beneficiary?
After people who have retirement accounts or life insurance pass away, their relatives often realize that they failed to name any beneficiaries for their accounts. As a result, the policies pass to the deceased people’s estates. The policies, worth a lot of money due to growth of investments or the life insurance cash payouts, greatly increase the estates’ values. Relatives then learn that these estates will have to go through probate court because of their values. They may even learn that the estates owe estate taxes to the IRS, which can run into the thousands or millions of dollars.
How Do You Designate a Beneficiary?
Life insurance policies and retirement accounts have similar methods of designating beneficiaries. Usually, you need to fill out a particular form and submit it to the insurance company or retirement account brokerage. The form might be called a “Designation of Beneficiary”, a “Change of Beneficiary”, or something similar. If you think you previously designated a beneficiary, you can check with the insurer or brokerage to see who it was, and change it if necessary.
On the beneficiary designation form, list the person or persons whom you want to be your beneficiaries. While you can name your estate as the beneficiary, it is not usually recommended for the reasons explained above. You also could name a trust or business as the beneficiary, but you should talk to an estate planning attorney and/or an accountant first to understand the tax consequences. Most people, though, choose to name individual people on the form.
Make sure to specify how much of the policy or account value each beneficiary will receive, and use the beneficiary’s proper names and identifying information. Then complete the rest of the form, sign it, and return it to your insurer or brokerage. Once you have completed these steps, then you have legally named the people listed on the form as the beneficiaries of your account. Should you pass away, the insurer or brokerage will be legally obligated to pay them or give them access to the account. Finally, make sure to leave information about your accounts in a secure location for relatives and heirs to locate if needed.
Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.