Thinking Twice About Beneficiary Designations

by | Apr 13, 2022 | Estate Planning


“You may be surprised at how easy it is to make an expensive mistake with your beneficiary designations,” a Kiplinger article by Tracy Craig begins. A large chunk of what passes for “estate planning” in our country is done by bank tellers, real estate agents and corporate human resource departments in the form of ownership and beneficiary designation “advice”.

Assets that pass via beneficiary designation include:

  • life insurance proceeds
  • annuities
  • retirement accounts
  • payable on death accounts

So what’s the problem with naming beneficiaries for your assets? “Not all loved ones should receive an asset directly,” Craig points out, specifically naming some individuals unable to manage assets wisely, including:

  1. minors
  2. individuals with special needs (an inheritance may cause them to lose government benefits)
  3. individuals with creditor issues

In addition, assets may be lost to intended heirs in a divorce

Trusts as an alternative to direct beneficiary designations
At Geyer Law, we explain to clients that as grantors, they get to establish rules for their trust, with a set of instructions that help ensure their intentions are carried out. If they give money to a family member directly (either through will or beneficiary designation), that money could be lost to the recipient’s carelessness, creditors, or divorce. What’s more, if the trust is properly structured, it can have tax advantages for beneficiaries.

When there are heirs with special needs, it is crucial to set up the trust so as to allow the beneficiary to receive the funds for supplemental expenditures not covered by government benefits without disqualifying the beneficiary from receiving those government benefits.

It’s not only special needs or the potential for divorce that must be considered. “The ability of a beneficiary to handle an influx of money should also be a consideration,” U.S. Bank cautions.
Naming a beneficiary who is not prepared to manage a windfall might result in some unwise short-term decisions,”.

– by Cara M. Chittenden, Associate Attorney with Rebecca W. Geyer & Associates