“Bear in mind the wonderful things you learn in schools are the work of many generations. All this is put in your hands as your inheritance in order that you may receive it, honor it, add to it, and one day faithfully hand it on to your children.”

Albert Einstein



Create your estate plan so you will have control over your asset distribution to your loved ones during your lifetime. Aim for your plan to be as litigation-free as possible. Beneficiary designations are an important way to in distribute most of your assets effectively.

Most of your assets can be easily transferred to your intended heirs quickly. You will avoid often painful and lengthy probate court procedures. Your will actually doesn’t control who inherits all of your assets. In reality, the majority of the average person’s assets are transferred by contract.

Transferring Assets Outside Of Your Will Is More Efficient

Many of our assets are nonprobate property. As such, they are transferable to survivors by contract immediately upon death rather than under a will.

The advantages of contract transfer over the distribution of assets by a will are less time, cost and more privacy. Transfers to loved ones by a will could take 6 months-1 year if probate is not required. If contested in court, the distribution could take longer. Even worse, your will would be made public through court documents.

We will explain how to make proper beneficiary designations so that our intentions are carried out.

First, let’s discuss the 3 ways nonprobate property may be  transferred by contract:


1.  Designated Beneficiary(ies) Upon Your Death

A beneficiary is a person or organization designated to receive a benefit. You can and should also designate a contingent (or secondary) beneficiary. Sometimes the first named or primary beneficiary dies after the form was filled out. Most of you have seen one but here is an example of a form to select your beneficiaries for those who want to take a look.

We usually get the form from our employer or a financial company. It takes only a few minutes to fill out yet carries significant repercussions if incorrectly filled out or ignored. That will be part of our upcoming discussion. You should name beneficiaries for all of the assets that you can.

Your nonprobate property are assets that are transferred to survivors by contract upon your death to your designated beneficiary.

Check With A Professional On Legal And Tax Issues

There may be legal and tax ramifications to be aware, especially your designated beneficiary is already receiving governmental benefits. Estate distributions to a beneficiary may require payment of an inheritance tax in certain states but not from the federal government.


Among your nonprobate assets:

  • retirement accounts, including 401K  plans, 403b plans, SEPs, sole 401Ks, Keough plans  IRAs, pension plans
  • 529 college savings plans
  • investment accounts, mutual funds accounts
  • payable-on-death clauses in bank accounts, credit union
  • life insurance policies or
  • by owning joint accounts with another person, usually a family member,  through rights of survivorship.

These assets are generally transferred directly to those beneficiaries that were designated by you.

When you first opened these accounts, you received a legal form to complete that provided you with the opportunity to designate your beneficiary.

Review beneficiary designations periodically

For example, if you designated your mom when you first set up your accounts, it is probably a good idea to refresh your beneficiaries. Often, after life changes such as a divorce, remarriage or the passing of a loved ones, our beneficiaries should be updated.

2. Property Ownership Designation

Husbands and wives (or parents and children) may have joint ownership of assets called joint tenancy with the right of survivorship.

Each person owns 100% of the asset. These include bank accounts, investment accounts and cars. They can dispose of these assets without the approval of the other owners. However, in the case of jointly owned real estate, most states restrict the ability of a co-owner to sell or burden the property without the consent of the other.

Upon the death of one owner, the assets are transferred on death (TOD). The surviving owner(s) will receive this property by operation of law, rather than through the will.

3. Payable-on-death (POD) designation

Similar to TODs, the designated beneficiary has no right to this property, usually a bank account, until the owner has passed away. Once the owner has died, the beneficiary will provide a copy of the death certificate and show proper identification to access the account.

6 Tips to Ensure Your Designated Beneficiaries Are Proper:



1. Don’t Forget To Name A Beneficiary

We live busy lives. We get a ton of forms when we start a new job or open new accounts.  We may lose them or forget where we placed them. Worse yet, we honestly want to fill them out but we are unsure or procrastinate over making such decisions. The form truly takes a few minutes and it is better to reasonably identify a loved one rather than leaving the form blank.

Absence of a designated beneficiary may result in the respective assets going to the estate itself to be shared among several people rather than the sole designee.

2. Name A Contingent Beneficiary

Besides naming a primary beneficiary, it is important to name a contingent beneficiary in the event the primary beneficiary has either passed away before the owner of asset or has become incapacitated. It may have been several years since the designated beneficiaries were selected.

3. Reviewing, Changing and Updating Your Beneficiary Forms

When you first start a job or open an account you may have been idealistic as to who you wanted to receive your assets. I have had friends select their boyfriends. Our lives go through a myriad of changes such as marriage, having children, divorce, and our interest in varying social causes.

We need to periodically review, and if necessary, update our beneficiaries who we are intending our assets to go.

My First Designated Beneficiary

When I first started working after college, I actually named my brother Mark as a beneficiary. I was 20 years old and he was starting high school. As “big sis” starting work right after college, I wanted to do something special for him. Being naive I thought he would like the gesture. I left the job 18 months later so it didn’t have a lasting effect. However, many of our decisions do.

Common Mistakes: An Ex As Your Beneficiary But Your Youngest Isn’t Designated

Your former spouse may still be listed as a primary beneficiary even though you haven’t talked to that person in years.  You have been working at your company for a long time and inadvertently neglected to name your youngest child or have since adopted the children of your second spouse.

Reviewing your beneficiary choices are often easily done online or through investment account statements you receive in the mail.

Another reason to review your form may be that you have been at the same firm for 35 years (congratulations!). However, are you sure your company still has the form on file?

A True Story

Someone recently told me that a family member had recently been diagnosed with a serious illness. They wanted to make sure they had insurance for the upcoming surgery.  The company told him that there were no records of designated beneficiaries on file for the years around the time he began working there.

Forms get lost when companies move, especially during the pre-digital age (after the times of dinosaurs)  and it may not have been converted online.

4. Be Careful When Designating Those With Special Needs

There are three possibilities that need special consideration and requires the expertise of an estate attorney and/or accountant to consider:

Minor Children: Differences Between Probate And NonProbate Properties

We often may name our children as designated beneficiaries on forms as well as in our wills for probate assets There are legal ramifications that you should be aware of.

It is fairly common for parents to have testamentary trusts within our wills that assert minimum ages for our children to have access to assets. They may want to restrict their children well past the age of majority (usually 18 years of age) to 25 or 30 years. Testamentary trusts, usually contained in wills are trusts that go into effect upon the death of the grantor.

A trustee is often used to administer the assets at their discretion until the beneficiary reaches that appointed age.That works for probate property.

Outright Distribution To Beneficiaries: Age Should Be Considered

However, the will’s contents which may carry a parent’s intentions, is trumped by beneficiary designations for nonprobate property.  This means that if a parent passes while the children are of minor age,  property, such as an insurance policy or a bank account, will pass to them automatically at 18 years. Most young adults cannot handle significant funds without supervision. Although research shows an inheritance lasts 5 years, it can much shorter in a younger individual’s hands.

Therefore, you may want to name the estate as your designated beneficiary rather than your children outright or create a living trust which can be changed as your children age. Your estate attorney can provide help on this area.

Background on Living trusts

Trusts can be used before death, as living trusts. These trusts are standalone, that is, independent of the will. These instruments can take effect while the grantor is alive. The grantor is the one conveying the property to the heir. It can give the grantor the right to make changes.

These are called revocable living trusts and the grantor can be the trustee. However, if the grantor is unable to serve because of becoming incapacitated, a new trustee can be named.


The Irresponsible Adult May Need Special Consideration

The naming of an adult child who is known for being irresponsible with money may need to be treated differently. In that case, you should speak to an attorney regarding the set up of a spendthrift trust.

This kind of trust is designed for the benefit of a person that is unable to control their spending. It gives an independent trustee full authority to make decisions on allocating money to the beneficiary.

Individuals With Disabilities

You need to be careful about naming a disabled individual as a designated beneficiary. You may jeopardize that person if they are already receiving governmental benefits, such as social security benefits. If they were to receive assets from your designation upon your passing, it may inadvertently prevent them from receiving further governmental aid.

5. Make Sure You Have Correct Spelling of Intended Beneficiaries

When you are designating an intended survivor, they may have a  name that is commonly misspelled or a title like Junior, Senior, or the III after their name. Check that you are indicating the correct person. It is always wonderful to give to others but make sure it is the person you intend.

6. If In Doubt, File A New Form

Having correct and updated forms are very important especially when you have retirement accounts, life insurance, bank and investment accounts. If you think about how your life has changes in recent years, you may just want to go the easier route of filing a new form for each of your assets that can be transferred outside of your will.


By keeping your beneficiary designations, and all of your estate planning documents current, you are providing the best protection for those you care about the most. A small amount of your time and effort may cover the vast majority of your assets.

Protect your assets and have a good plan to distribute them to loved ones. You don’t want to add potential angst to their grief. Engage an accountant to help you realize tax efficiencies and estate attorney for special situations.

Have you started reviewed your beneficiary designations recently? It is usually easier to do when you have no urgent reason to do so but are thinking of your family’s best interest. Start thinking about your assets and which ones are nonprobate property and consider reviewing them or file new ones.

Related Post: Your Guide To Basic Estate Planning In 6 Steps

Please share any thoughts or comments you may have. We would love to hear from you!


Pin It on Pinterest

Share This