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How to use beneficiary designations responsibly

On Behalf of | Mar 12, 2020 | Estate Planning

The use of beneficiary designations may help you ensure that your assets go to their intended recipients after passing on. However, if they are used on the wrong assets, these designations could undermine some or all of your estate plan.

Avoiding probate isn’t your only priority

You may be thinking that it is a good thing to avoid probate by any means necessary. However, probate is not necessarily a bad thing, and with proper planning, it may be possible to make the process a relatively easy and timely one.

Assets can be harder to protect and manage

Giving assets directly to a beneficiary could negate the benefit of having a credit shelter trust or similar estate plan document. Furthermore, holding assets outside of a trust could make them vulnerable to creditor claims. The beneficiary would likely be able to use money or other assets as he or she pleased.

If the inheritance stayed in the trust, the trustee may have some control over when funds were distributed or what they could be used for. Passing assets directly to beneficiaries could make it harder for an estate executive to pay debts or estate taxes. In some cases, a beneficiary may be required to pay a portion of those debts or taxes from the money he or she directly inherits.

Some beneficiaries could be left out

During the initial phase of the estate planning process, you may have promised to give money or other assets to individuals or charitable groups. By adding a beneficiary designation after a trust or other document has been executed, it may be impossible to fulfill that promise.

If you need help creating an estate plan or reviewing current estate planning documents, it may be a good idea to consult with an attorney. An attorney may explain the benefits of a beneficiary designation as well as how it might fit into your overall plan.