Beware the Beneficiary Form (Part 3 of 4)

HNW Elder Law, Estate Administration and Probate, Estate Planning

This is the third post of a four part series on estate planning and beneficiary designations.  I continue with my discussion of a beneficiary designation form(s).

Avoid Naming Minors to a Beneficiary Form

Avoid leaving assets to minors outright. If you do, a court will appoint someone to look after the funds, a cumbersome and often expensive process.  Also think about what can happen when the money is payable to a child at age 18 or 21. What would you have done with new found money at age 18 and no restrictions?

I’ve seen 18-year olds receive proceeds from life insurance policies.  While one young beneficiary still has her money, “the other two minors bought and wrecked brand new cars, splurged on clothes, and champagne, lent money to friends and generally went from $150,000.00 to actually owing money to credit card companies in just one year.”  The problem could have been avoided if the parents had set up trusts for the kids payable at, say age 30, and named the trusts as beneficiaries of their life-insurance policies.

Beneficiary Designations for Disabled Minors and Adults

Disabled children and adults-require “special or supplemental needs trusts” that preserve their ability to receive government benefits, as even a small inheritance given to them outright can prevent them or disqualify them from getting public aid and assistance. Please visit my dedicated page on special needs trusts to learn more (click here).

Beneficiary Designations for Retirement Accounts

For retirement plans, the biggest mistake is to name your estate as beneficiary, because that means when you die, the full amount of the plan must be paid out and taxed within five years. Individual beneficiaries, by contrast, can stretch out the distributions and the taxes for up to a decade (10 years).  Because many people have a large portion of their assets in retirement accounts, they also should be sure that the distributions on those accounts provide for family members as appropriate, particularly in complex situations such as a second marriage when there are children from the first union.

Beneficiary designations are crucial to estate planning in New Jersey.  For more information please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.

For further information, please go to https://youtu.be/XpuVawQtBnQ  to learn more.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Estate Planning Attorney

Previous PostNext Post