In Florida estate planning, a “beneficiary” is someone who has the legal right to receive the benefits of a Will, Trust, financial account or Life Insurance policy as well as a Ladybird or Enhanced Life Estate Deed. A beneficiary under a Last Will & Testament(will) has the right to receive distributions of estate assets through the said will. Trust beneficiary is someone who receives distributions of trust assets or income. A Life Insurance policy’s beneficiary holds the right to receive the policy’s payout when the insured dies, A designated beneficiary of a retirement account, brokerage account or bank account automatically receives the account or its proceeds upon the owner’s death.
It should be noted that the right to receive payments or assets is not the only right enjoyed by beneficiaries. Under Florida law, beneficiaries are afforded numerous other privileges and protections, depending upon the instrument or document involved. A designated beneficiary under a will, trust, insurance policy or other instrument, should understand all of their legal and contractual rights in order to take advantage of the beneficiary position.
In a general and brief overview, although the terms of beneficiaries and heirs are often used interchangeably, there is a distinction between an heir and a beneficiary in Probate. A beneficiary is someone named in a Last Will & Testament and has a right to receive assets conveyed or distributed by a will. An heir, instead, stands to inherit assets from a deceased party or decedent who did not have a will under the state’s intestate succession laws. Heirs are usually relatives of the decedent, but beneficiaries don’t necessarily have to be family members.
The trust beneficiaries are named in a trust document and have rights primarily derived from the terms of the subject trust and duties of the trust’s trustee. Trustees must administer their trusts in good faith and in accordance with the best interests of beneficiaries and the purpose of the said trust.
Other types of Beneficiaries such as P/O/D, T/O/D, I/T/F, Retirement Accounts, and Life Insurance stand for payable on death, transfer on death, in trust for and are similar designations allowing an asset’s title or ownership to automatically pass to a named beneficiary upon the owner’s death. In Florida, POD and ITF designations are commonly used for bank and money-market accounts and CD’s. TOD designations are usually associated with stocks, bonds, and brokerage accounts. The benefit of either designation is that, after the owner dies, the asset vests in the listed beneficiary or beneficiaries’ name or names with no need for probate court proceedings.
A POD or TOD designee has the right to receive the subject asset in the future, i.e., at the time of the owner’s death, but doesn’t acquire a present interest when the designation is made, similarly to a life interest in real estate. Consequently, where a remainderman of a life estate or enhanced life estate automatically receives title of the said real estate after the death of the property owner, TOD, ITF, or POD beneficiary has same automatic receipt upon the death of the account’s owner.
Retirement accounts, such as 401k’s and IRA’s in Florida, allow the account owner to designate a beneficiary to automatically receive the account upon the owner’s death. As with a POD beneficiary, a retirement account beneficiary does not need to go through probate administration.
When the account transfers, the beneficiary has three basic options for accepting it (or four if the beneficiary is a spouse), i.e., withdraw the money and pay the income taxes now; leave the account in place and accept required minimum distributions over the beneficiary’s life expectancy; or roll over the account into an “inherited IRA,” which allows for continued tax deferral but no additional contributions. A spouse who is a beneficiary can do any of the above or roll over the account into an IRA in the name of the surviving spouse, which is then treated as if it had always belonged to the surviving spouse. However, a review of the CARES Act may be necessary to see what time frames may have been changed or altered.
Life insurance beneficiaries have the right to receive a policy’s payout upon the death of the insured. With most policies, the beneficiary has numerous settlement options to choose from, ranging from a single, lump-sum payment to an annuitized “life income” payout that provides regular guaranteed distributions or disbursements for the rest of the beneficiary’s life. Under Florida’s exemption laws, life insurance proceeds are normally protected from attachment by the beneficiary’s creditors in most cases. Beneficiaries can usually claim life insurance proceeds as an exempt asset in bankruptcy as well.
Even though title or ownership passes automatically from a legal standpoint, as a practical matter, beneficiaries need to take action to ensure they receive their full benefits accordingly.
If a designated beneficiary has questions or needs representation relating to rights they hold as a beneficiary as well as how to make claims therefor in Florida, attorneys at the law firm of CASERTA & SPIRITI can assist them to better understand and protect their rights.