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Issues to consider regarding beneficiary designations

When it comes to estate planning, one thing it can be important to give careful thought and attention to are beneficiary designations.

How your various assets are held will determine which of them will go through probate and which will be exempt. The difference will matter to your beneficiaries.

Ultimate control

How you title your assets and designate beneficiaries controls who gets what--and when--at your death. Here are examples of assets that generally will not have to go through the lengthy probate process:

  • Joint tenancy: Title to this asset will pass to the surviving owner.
  • Bank account with POD designation: POD stands for "payable on death," so this asset will go directly to the beneficiary you name.
  • TOD designation: If you made the "transfer on death" designation on your investment account or real estate property, the asset will transfer directly to the beneficiary you have named.
  • Direct beneficiaries: Any beneficiaries you have named on your life insurance policies or retirement accounts will be the direct recipients of these assets.

Special needs individuals

Be cautious about naming anyone with special needs as a direct beneficiary. If this individual is receiving Supplemental Security Income or similar benefits, you could inadvertently disqualify him or her from receiving government assistance. You might want to talk to an estate planning attorney about creating a special needs trust within a framework like your will or living trust that would set up a lifetime benefit for this person.

Avoiding problems

The subject of beneficiary designations can be somewhat complicated. For example, there are certain pitfalls associated with probate avoidance strategies. There are also tax consequences that you may want your beneficiaries to be able to avoid. Also, it can be important to update beneficiary designations when changes occur, such as divorce and remarriage. It is all about planning for the future and avoiding errors that could impact the lives of your loved ones after you are gone.

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