Continuing the theme of our previous post, which shared reasons why a review of beneficiary designations for retirement plans and life insurance is often not given the attention that it deserves, it’s important to be aware of additional benefits.
In addition to providing the security of having these assets go where one desires, beneficiary designations avoid probate, which is the court supervised process of distributed assets after one’s death. Probate is often costly and time consuming, and adds an additional “hoop” through which loved ones are required to jump.
Besides naming a primary beneficiary, it is recommended that you designate a secondary or “contingent” beneficiary, in case your primary beneficiary fails to survive you. In such a case, if you haven’t named a contingent beneficiary, the proceeds will become subject to probate, and may also be subject to additional taxes.
Finally, you should also keep in mind that if any of your beneficiaries are minors, policy proceeds and plan distributions should typically not transfer directly to them until they reach legal adulthood. If you have minor children or loved ones with special needs, then you may want to consider designating a specially designed Trust (such as a “Conduit” Trust, which may have tax advantages or a “Special Needs” Trust, which avoids the loss of public benefits, as the case may be) as the beneficiary.