Beneficiary Designations as well as a Lady Brid Deed takes precedence or priority over a Last Will & Testament as well as a Trust, which means that if one gets divorced and remarries, but does not update their beneficiaries on accounts, a former spouse may be the legal heir to those accounts if you named them the beneficiary while married. Trusts control the trust estate, the assets that are placed within their ownership and titled in the trust name. They do not overlap and therefore cannot supersedeother designations.
A Last Will or living trust do NOT override the beneficiary designations for life insurance policies, retirement accounts and other types of investment or bank accounts. This includes accounts, such as life insurance policies, annuities, IRAs, other tax-favored retirement accounts and employer-sponsored benefit plans. The person(s) named on the most-recent beneficiary form will get the money automatically if one dies, regardless of what the Last Will or living trust document might state.
Deeds such as a Lady Bird with its Remaindermen (i.e., like designated beneficiaries but for real property) or ownership by the Entirety as a married couple and/or joint tenants with right of survivorship, the surviving spouse will automatically get sole ownership of the property when the other spouse dies and/or the property automatically goes to the surviving joint tenant or Remainderman. The major advantage of these types of ownership is that they avoid probate.
Most beneficiary designations will require one to provide a person’s full legal name and their relationship (i.e., spouse, child, mother, etc.). Some beneficiary designations also include information like mailing address, email, phone number, date of birth and Social Security number.
An estate plan in Florida can include several documents, many of which may require beneficiaries, like any trusts, a person may have set up or intended to set up, non-probate assets like 401(k), IRA accounts, life insurance policies, and pensions. Assets from these accounts will go to the beneficiaries upon the owner’s death. It is important, therefore, to make sure one chooses their beneficiaries carefully.
A beneficiary designation involves naming the person who will directly receive an asset in the event of the death of its owner. Again, assets which allow for beneficiary designations include insurance policies, retirement accounts such as 401(k) plans, annuities, and other financial accounts. Trusts also need beneficiary designations. An individual can also choose beneficiaries in their Last Will and Testament.
It must be noted that beneficiaries are different from heirs. Beneficiaries are chosen while heirs are those who inherit the property of a person who dies intestate, or without a Last Will, usually next of kin as governed by state law.
The designation process ensures the named beneficiary directly receives the asset, rather than it passing to the owner’s estate and going through probate, which may involve significant time and expense.
Beneficiary designations are unique to each asset and may be managed by the entity that holds the subject asset. An example would be a life insurance policy whereby the company that holds the policy will likely provide a beneficiary designation form during the enrollment process. In the said form, the applicant would specify which individuals (i.e., beneficiaries) should benefit from the subject policy in the case of death.
When a person dies, the instructions in their Last Will & Testament only distributes assets included their “probate estate” or in their name alone. Assets with beneficiary designations get excluded from the probate estate. To avoid a conflict, it is crucial to ensure that the language in one’s Last Will correlates with and/or considers their beneficiary designations. It merits to perform a regular review and update of the Last Will as well as beneficiary forms as needed since, typically, a beneficiary designation overrides a Last Will.
Common categories of beneficiaries in Florida include eligible designated beneficiaries, designated beneficiaries, non-living beneficiaries, and contingent beneficiaries. Different eligibility rules may apply to various categories of beneficiaries.
Eligible designated beneficiaries include:
- Spouses;
- Children under 18 years of age;
- Individuals with a disability;
- Chronically ill individuals; or
- Individuals within 10 years of age of the deceased.
Eligible designated beneficiaries have additional rights to designated beneficiaries.
A designated beneficiary is any living person who does not fall into the above categories. This may include a friend or extended family members, such as elderly parents or a sibling.
Another type of beneficiary is a non-living beneficiary, such as a charity, trust, or estate.
A contingent beneficiary is a “backup” beneficiary to whom receives the asset in the event the primary beneficiary is unable.
When choosing a beneficiary, the following are key factors to keep in mind.
A beneficiary typically must be over 18 years of age. If an individual wants to gift an asset to a minor upon death, one may need to set up a minor’s trust and name the trust as the beneficiary, if appropriate; otherwise, a legal guardianship will be needed.
Financial dependents are a good starting point when considering who to designate as a beneficiary. These may include a spouse, children, or other extended family members.
A beneficiary generally must have an insurable interest in the insured person. The foregoing means there must be a legitimate financial interest between the two, such as in the case of dependent children or a spouse.
Some life insurance policies or pension funds set rules for naming a beneficiary. Make sure to be aware of these before making decisions and seek legal and financial advice about the options.
Depending on the document and the terms of the contract, some beneficiaries may be irrevocable. The preceding means one cannot revoke said beneficiary’s rights unless they agree to it. At first glance, one may wonder why they even would want to designate beneficiaries as irrevocable, but there are benefits. An estate planning attorney can explain the reasons and situations where irrevocable beneficiary designations may be most appropriate as well as the reverse.
In Florida, the best way to avoid most potential issues when it comes to a beneficiary designation is to speak with a lawyer to ensure the selected designation is valid.
Some common challenges that may arise when designating a beneficiary are as follows.
When choosing a beneficiary, it is possible to set either a fixed dollar amount or percentage the subject beneficiary will receive. However, a fixed dollar amount can cause issues if the value of the asset is insufficient (or if it increases in value, leaving a portion of the asset to probate). To avoid this, assign a percentage value instead.
Failing to name a contingent or alternate beneficiary may result in an asset needlessly going through probate. To avoid this, identify a contingent beneficiary who will receive the asset in the event the primary beneficiary cannot accept it, such as when the primary has predeceased.
The identity of a named beneficiary may not be clear, such as when several people in the family share the same or similar name. Names may also change as a result of marriage or divorce. Always confirm the correct legal name of the intended designated beneficiary and ensure that the applicable document is updated to reflect any name changes.
Designating “all my children” can create challenges. For example, if a child beneficiary dies before their parent, it may be unclear as to how their portion should be distributed. It may be distributed among the surviving children, or instead, pass to their offspring or descendants. To avoid this issue, one should be specific when naming a beneficiary.
The foregoing is just a general and brief overview of the subject of beneficiary designations and the like versus other estate planning instruments in the state of Florida. If you have any additional questions regarding the foregoing or have any legal issue or concern, please contact the law firm of CASERTA & SPIRITI in Miami Lakes, Florida.