Beneficiary Designations and Estate Planning: A Guide

Beneficiary designations are an important, but too often overlooked part of the estate planning process. Simply defined by the national financial services company Ameriprise, a beneficiary designation “describes how your assets will be distributed upon your death.” Money, property, and assets held in an account with an available beneficiary designation can be passed directly to an heir. Probate is not required. In this blog post, our Mecklenburg County estate planning lawyers explain some of the most important things that you should know about beneficiary designations in North Carolina.

When people craft an estate plan, they often look for strategies to limit their estate’s exposure to the probate process. The North Carolina Judicial Branch defines probate as the process through which a person’s will is confirmed by a court and their estate is administered. While not everyone runs into serious conflicts during probate, it can be a time-consuming, even frustrating process.

This is the primary reason why beneficiary designations are a powerful estate planning tool. A beneficiary designation is a simple way to ensure that certain assets go directly to the right person. Not only do you not have to worry about these assets going through the North Carolina probate process, but well-prepared beneficiary designations are clear. There is less chance for conflict to arise over your “true” intentions.

For the most part, beneficiary designations are a preferred way to transfer assets. By avoiding probate, a designated beneficiary can get access to their inheritance quickly and easily. That being said, a beneficiary designation is not the right solution in every case. The biggest downside is that the original owner does not have control over their property.

If you name someone as a designated beneficiary, they get the assets without strings attached. In many cases, that is not an issue—but there are exceptions. For example, imagine that you want to leave money to a grandchild on the condition that it is used to pay for college. With other estate planning tools, you could put that requirement in place. However, with a beneficiary designation, there is no control over the assets once they are transferred.

In general, you will find that most of your financial accounts allow you to set up beneficiary designations. Along with other types of financial assets, you can usually use a beneficiary designation to transfer:

• Investment accounts.
• Retirement accounts (401(k), IRA, etc.).
• Annuities.
• College savings accounts; and
• Life insurance policies.

Often, financial accounts allow for flexible beneficiary designations. In effect, this means that you are not necessarily required to select a single beneficiary. For example, if you have four children, you could theoretically name them each as beneficiaries on your retirement account, with each of them receiving a 25% share of the remaining proceeds at the time of your passing.

Your estate plan should be reviewed on a regular basis. The general rule of thumb is that estate plans should be reviewed after every major life event (birth of a child, marriage, divorce, etc.) and once every year or two. A review does not have to take a lot of time—you simply need to confirm that the strategy you have in place still meets your needs and your goals. An estate plan that is outdated can cause big problems, including conflict between family members.

When you review your estate plan, make sure that you do not forget about beneficiary designations. Too many people overlook their beneficiary designations and, unknowingly, end up with an out-of-date estate plan. Designations will not update automatically. As a simple example, imagine that you named your four grandchildren as equal beneficiaries on an investment account back in 2015. Since then, two more grandchildren were born. You likely need to update your designations to ensure that you knew grandchildren are included as part of your estate plan.

At Arnold & Smith, PLLC, our North Carolina estate planning lawyers provide personal attention to each and every client. We will help you find the strategy that works best for your specific situation. If you have any questions about beneficiary destinations and estate planning, our legal team is more than happy to help. Call us at 704.370.2828 or contact us online for a confidential consultation. Our firm has law offices throughout the area, including in Charlotte, Monroe, and Mooresville.