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Beneficiary Designations in Cary, NC

Designating beneficiaries is an important aspect of estate planning that many people tend to overlook. A beneficiary designation identifies an heir to an asset if the owner passes away. These assets are transferred to the designated beneficiary regardless of the terms of the Last Will & Testament. Financial accounts, life insurance policies, and retirement accounts are just a few assets that allow beneficiary designations. Naming eligible designated beneficiaries is one of the many ways your assets can avoid probate. But without it — you may be leaving your estate up to interpretation. If you wish to secure your plans for the future, an estate planning lawyer could explain all the necessary steps and considerations for beneficiary designations in Cary, NC.

The Importance of Beneficiary Designations & Retirement Accounts

Unlike assets held in trust or covered by a will, a retirement account is typically passed through a beneficiary designation. These decisions are important in ensuring a person’s retirement accounts will be passed on as intended. Additionally, these transfers can also have significant tax implications. Sometimes, the wrong beneficiary choice could accelerate a tax bill upon the account holder’s death. Accordingly, determining and updating beneficiary designations should be a part of any estate plan. Discussing this decision with an experienced attorney could help Cary residents avoid unintended tax consequences and ensure their final wishes are respected.

What Happens if I Don’t Designate a Beneficiary?

On top of tax repercussions, neglecting to designate or update beneficiaries could result in multiple problems. One of the primary risks is that assets could potentially be transferred to unintended recipients. Because beneficiary designations will supersede Wills and intestate succession laws, failure to update them could counteract a person’s final wishes. For example, a person that goes through a divorce and fails to change the beneficiary designation on their life insurance or retirement accounts could unintentionally leave these funds to their former spouse. Another potential problem involves unnecessary probate complications. Assets like IRAs and retirement accounts allow an individual to avoid probate entirely, but the wrong beneficiary designation could place these funds into probate. If a person’s estate is the beneficiary of these accounts, it could not only require probate but also complicate the tax circumstances of the estate. A knowledgeable local attorney could further advise on the beneficiary designations’ impact on the probate process.

When Should I Update Beneficiary Designations?

Most attorneys advise their clients to review their Wills every few years. The same is true for beneficiary designations.
In addition to periodic reviews, it is also worthwhile to review these choices following major life events, such as:

  • Marriage
  • Divorce
  • A new child
  • Job change
  • Retirement
  • Death in the family

Reviewing these designations often requires contacting each institution with which a person has an account or policy. It is also helpful to obtain written confirmation of each designation to ensure there are no unexpected consequences.

Primary Vs. Contingent Beneficiaries

A primary beneficiary is the first in line to receive your assets when you die. But if that person dies or cannot inherit your assets upon your passing, you should name a contingent beneficiary in their absence. A contingent beneficiary is the “backup beneficiary” or the second person in line to inherit your assets. By designating multiple beneficiaries on a financial account, these assets can bypass the probate process.

Top 4 Mistakes to Avoid When Naming Beneficiaries

We all make mistakes, but some can cost us more than others. Here are four common mistakes made when designating beneficiaries and how to avoid them.

#1 Forgetting to Update Your Will or Other Beneficiary Designation Forms

When you are in a transition like an upcoming divorce or separation, remember to update your designated beneficiaries everywhere. You wouldn’t want your hard earned money getting into the wrong hands or litigation on your estate.

#2 Not Naming Beneficiaries at All

When you don’t leave an estate plan, North Carolina law determines who your beneficiaries will be. And it may not be the distribution you’d prefer. You can avoid misinterpretation of your final wishes by planning ahead.

#3 Failing to Consider the Tax Consequences

If your life insurance policy or other assets are left payable to your estate rather than a named beneficiary, these benefits can become taxable. This designation increases the value of your estate and subjects your entire estate to probate. Your surviving loved ones may have to pay federal estate taxes, among other final bills.

#4 Not Accounting for Special Circumstances

Are you leaving behind a young child or a family member with special needs? Keep in mind that designating these individuals as beneficiaries may not have the consequences that you intend. Minors can not inherit assets directly. An adult must manage any assets left to them until they reach age 18. What happens if that adult is someone you don’t trust?

Additionally, when special needs individuals inherit assets, this may negatively impact their ability to qualify for government assistance like Medicaid or Supplemental Security Income. Often, the best thing to do when naming beneficiaries for your estate is to consult an experienced estate planning attorney.

Talk to an Attorney About Beneficiary Designations in Cary

Estate planning lawyers can assist with more than just forming Trusts or the execution of a Will. Consult a legal advisor about updating your beneficiary designations in Cary to ensure that your final wishes are secure. Let an experienced attorney help establish beneficiary designations that fit your estate plan. To discuss your options and set up a meeting with our team, call us today.

FAQ: Beneficiary Designations

Can you change beneficiaries?
You can change a beneficiary at any time with the help of your account administrator. You may be able to do so online or over the phone. However, some life insurance policies have irrevocable beneficiaries or beneficiary designations that you can not change without the beneficiary’s consent. Speak to your administrator about the beneficiary designations available to you.

Does a designated beneficiary override a will?
The designation of beneficiaries generally precedes a will. The account administrator can transfer life insurance proceeds or assets directly to the person designated as the beneficiary. This explains the importance of regularly reviewing your beneficiaries and updating accordingly.

How should I designate beneficiaries?
To make a beneficiary designation, you must fill out a beneficiary designation form with the company holding your account (insurance company, financial institution, etc.). They’ll ask for the identifying information of your eligible designated beneficiary; in some cases, you may be able to do this online.

Can anyone be named as a beneficiary?
You can name a person, an entity, or your estate as the beneficiary of your assets. However, although almost anyone can be named as a beneficiary, there are consequences to these designations. An estate planning attorney can walk through those scenarios with you and help you make the best decision for your family’s future.