Do Life Insurance and Retirement Benefits Need to Go Through My Estate?
By: Barry E. Haimo, Esq.
May 19, 2015
BARRY HAIMO: Generally, if structured properly, life insurance and qualified retirement accounts will not go through your estate, because they will go to the proper beneficiary.
A beneficiary is an individual who receives the benefits of something, usually an asset, such as a car, bank account, house, or stock. It can also include the proceeds of a life insurance policy, annuity or other retirement vehicle. Most of what you own will go through your estate unless you plan ahead. Remember, probate only applies to assets owned solely in the name of the deceased. These assets may include your investments, money and other property. They will be devised in accordance with either a will or statute if you don’t have a will, or a trust or other disposition if you engaged in pre-planning. Doing so will help avoid costly and drawn out probate proceedings for your next of kin.
As it relates to life insurance policies and retirement benefits, they generally do not need to go through an estate. Often, it is generally in your best interest to have these policies transfer outside of your estate.
Instead, when planning your estate, you will want to ensure you have properly named beneficiaries on these accounts so they transfer to the people you intend them to. It’s also important to review your policies to make sure they are coordinated with your estate plan. If done correctly, assets with beneficiary designations will pass outside of probate to your designated beneficiaries.
Things to Consider When Naming Beneficiaries
It’s important to consult with your estate planning attorney to ensure you properly name a beneficiary for your retirement and life insurance accounts. Naming beneficiaries can be complicated and can present the beneficiary with unexpected estate and income tax consequences alongside the benefits. In particular, a mistake in naming beneficiaries can result in probate proceedings or costly litigation.
When naming a beneficiary for your accounts, you may want to consider these factors:
- The age of the beneficiary – Most policies and plans do not directly transfer assets to minors until a trustee or guardian is approved by a court.
- The beneficiary’s ability to manage the assets – Particularly if the beneficiary is a young person, it may be a better idea to set up a trust in their name if you think they will have difficulty managing the assets properly.
- The beneficiary’s likelihood of attracting creditors – If the beneficiary is likely to get divorced or incur debts, then placing assets to be inherited in trust will protect such assets from those soon-to-be creditors.
- Pension plans – Unless your spouse waives this right in writing, the law requires a spouse to be the primary beneficiary of a pension plan.
You will also want to name a secondary beneficiary or contingent individual. In the event the primary beneficiary passes away before you do, the proceeds of the account will go to this secondary individual or a trust.
If you do not designate a beneficiary, the proceeds will be redirected into your estate. The benefits of your account will be subject to probate and distributed according to the terms of your will. If you pass away without a will, the death benefits of the account will be distributed according to Florida’s intestate laws.
When naming beneficiaries for your life insurance or retirement accounts, consulting with an expert estate attorney can help you decide the best course of action for your situation. Planning your estate can be a difficult process that leaves little room for mistakes. Your attorney can advise you and help you employ powerful estate planning tools to ensure your estate passes safely into the hands of your loved ones.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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