Some assets allow you to name beneficiaries on a company form known as a beneficiary designation form to indicate who should receive your funds at the time of your death. Common assets that allow for beneficiary designations include IRAs and retirement plans, life insurance policies, annuities, bonds, stock certificates, investment accounts and certain bank accounts with POD or TOD designations (payable-on-death and transfer-on-death). As the account holder, you complete the forms, send them back to the financial institution, and then the forms are kept on file with the financial institution until your death. If you do not complete the designation form, the asset will either be paid to your Estate upon your death or paid out in accordance with the company's distribution policy.
Did you know that these beneficiary designation forms supersede your Last Will and Testament? Many clients are surprised to learn this and ultimately may upset their estate plan greatly by failing to update these forms. In other words, if your Will leaves your assets equally to your three children, but your beneficiary form only names one child, then that asset will pass only to your one child. When reviewing your estate plan, your attorney should work with you to make sure your designation forms are consistent with your wishes. In some cases, naming your one child on the account may be intentionally done as part of your estate plan, but in other cases, it's may be an unfortunate oversight. For this reason, simply executing your Last Will and Testament is not sufficient.
Below are some quick tips for updating your forms:
Discuss with your attorney. When updating your Will and reviewing your estate plan with your attorney, make sure to discuss necessary updates to your beneficiary designation forms and any legal issues to consider when naming your beneficiaries.
Name contingent beneficiaries. Be sure to name contingent (back-up) beneficiaries or select "per stirpes" (if appropriate) in the event that your primary beneficiaries predecease you.
Do not name minors outright. Do not name your minor children or grandchildren as outright beneficiaries.
Update as needed. Be sure to update these forms (and your estate plan) after major life changes such as divorce, marriage, or death of named beneficiary.
Send the forms in. Make sure you send the signed form to the financial institution. Simply completing the form and maintaining it with your own records is not sufficient.
Keep a copy. Maintain a photocopy of the fully signed form for your records and consider giving a photocopy to your attorney. Between bank mergers, closures and other institutional changes, forms can get lost.
One final note - Aside from life insurance, Pennsylvania imposes an inheritance tax on all other assets passing to beneficiaries. Clients often think that assets passing directly to their beneficiaries (outside the Will) are not subject to inheritance tax, but that is not the case.
If your estate plan needs to be updated or you are unsure if your beneficiary designation forms are properly completed, we can work together to help you navigate any necessary changes. You can contact us by phone at 267-625-8877, by e-mail at jbarton@bartonestatelaw.com or by visiting our "Online Booking" page.