At Katzner Law Group, we understand that estate planning can be emotional and at times complex. A fundamental component of this process is deciding who will be the beneficiary of your assets. In simple terms, a beneficiary is an individual(s) or charity(ies) you legally designate to receive assets or benefits from your trust, estate, or on the account itself, such as real property, life insurance policies, retirement accounts, and brokerage assets (to name just a few types of assets). Properly naming the beneficiaries of your assets ensures that your assets are distributed according to your wishes and can help avoid potential legal complications.
What Is a Beneficiary?
As noted above, a beneficiary is someone, typically an individual(s) or charity(ies), you name to receive assets upon your death. Deciding upon your beneficiaries is a critical aspect of estate planning, as it determines how your assets are distributed.
Beneficiaries can be designated in various financial instruments, including:
- Life Insurance Policies: The person or entity who will receive the death benefit.
- Retirement Accounts: Such as 401(k)s or IRAs, where the beneficiary receives the account balance (or it goes to a trust for asset protection and long-term planning purposes).
- Wills and Trusts: Legal documents specifying who inherits your assets.
- Bank Accounts: Accounts with payable-on-death (POD) designations.
It’s important to note that beneficiary designations override instructions in a trust or will, making it essential to keep them aligned properly with your overall estate plan.
Types of Beneficiaries Explained
Understanding the different types of beneficiaries helps ensure your assets are distributed as intended.
1. Primary Beneficiary
The primary beneficiary is the first in line to receive assets upon your death. You can name multiple primary beneficiaries and specify the percentage of the asset each should receive.
2. Contingent Beneficiary
A contingent beneficiary (also known as a secondary beneficiary) receives the assets if the primary beneficiary is unable or unwilling to do so. This ensures that your assets have a designated recipient even if unforeseen circumstances arise.
For example, if you name your spouse as the primary beneficiary of your life insurance policy and your sibling as the contingent beneficiary, your sibling would receive the death benefit only if your spouse predeceases you or declines the benefit.
It’s advisable to review and update your beneficiary designations regularly, especially after major life events such as marriage, divorce, or the birth of a child.
3. Revocable vs. Irrevocable Beneficiaries
- Revocable Beneficiary: You can change the beneficiary designation at any time without their consent, as clarified by the Office of the New York State Comptroller.
- Irrevocable Beneficiary: Once named, you cannot change the beneficiary without their written consent.
Choosing between revocable and irrevocable beneficiaries depends on your specific estate planning goals and relationships.
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Beneficiary Designations in Wills and Trusts
Structuring not just who your beneficiaries will be, but also how they will receive your assets upon your death (meaning are they adults, minors, financially mature enough to manage their inheritance themselves, etc.), is an integral decision point of your trust or will, as it guides the distribution of your assets.
Wills
A will outlines your wishes regarding asset distribution and can name beneficiaries for various assets. However, it’s crucial to ensure that beneficiary designations in financial accounts align with your will, as discrepancies can lead to legal challenges. Wills also guarantee probate, a lengthy, time consuming, and public state court process – something most find vitally important to avoid by instead planning their estate with a trust.
Trusts
Trusts allow you to set specific terms for asset distribution, providing more control over how and when beneficiaries receive assets. For example, you can stipulate that a beneficiary receives funds upon reaching a certain age or milestone. Trusts also avoid probate entirely, instead your assets will be administered in private upon your death.
In New York, trusts are governed by the Estates, Powers & Trusts Law (EPTL), which outlines the legal framework for creating and managing trusts.
Legal Considerations in New York
In New York, specific laws govern the designation and rights of beneficiaries.
- Life Insurance: According to the New York Department of Financial Services, if you die during the term of your life insurance policy, the company will pay the face amount to your beneficiary.
- Retirement Accounts: The New York State and Local Retirement System (NYSLRS) allows members to designate beneficiaries for death benefits. It’s essential to keep these designations current to ensure benefits are distributed according to your wishes. If you have minor children, you typically do not want to name your children by name as beneficiary of your retirement assets, rather you should strongly consider putting in place a Retirement Plan Trust.
Failure to designate a beneficiary can result in assets being distributed according to state intestacy laws, which may not align with your intentions.
How Katzner Law Group Can Assist You
Navigating the complexities of beneficiary designations and estate planning requires professional guidance. At Katzner Law Group, we specialize in creating comprehensive estate plans tailored to your unique needs.
Our experienced attorney can help you:
- Identify appropriate beneficiaries for your assets.
- Ensure your beneficiary designations align with your overall estate plan.
- Navigate New York-specific laws and regulations.
- Update your estate plan as your circumstances change.
Don’t leave your legacy to chance. Contact us today at 855-528-9637 or visit our contact page to schedule a consultation. Let us help you secure your family’s future.
