It Matters: Beneficiary Designation

 

A beneficiary designation is one form of a will substitute. It allows you to transfer certain assets, such as the proceeds of a life insurance policy or a retirement plan (e.g., an IRA, 401(k), or 403(b)), without going through probate. The person or entity you choose to receive the proceeds is called a beneficiary. If you're single, you can choose anyone you wish as the beneficiary. If you're married, the law may restrict your choice. You can also name a charitable institution, your estate, or a trust as the beneficiary of many retirement plans.

It's common to name a minor (a child under the age of 18) as the beneficiary of a retirement account. You could name your children (if you’re a single parent), your grandchildren, or a young friend or relative. Even if you don't name a child as your primary beneficiary, you may want to name one as an alternate. If you name a child as a beneficiary, you should also appoint an adult to act as guardian of the funds. Otherwise, if you pass away while the child is still a minor, the child's parents may have to petition the court to act as guardians. If the child's parents are no longer alive, the child's court-appointed guardian will handle the money. The court's involvement can be costly, time-consuming, and intrusive. It's best to avoid it if possible. The easiest way to name someone as a guardian of a child's property is to appoint an adult as a “custodian." Custodians are authorized under the Uniform Transfers to Minors Act (UTMA), which most states have adopted.

Your choice of beneficiary is a factor in determining how quickly retirement plan funds must be distributed after you pass away. Surviving spouses have more options for handling the money than do other beneficiaries. A surviving spouse can keep the money tax-deferred, at least for a while, either by rolling it over into an IRA or by leaving it as is. Also, some retirement plans don't allow for the naming of an alternate beneficiary. You must check with your plan regarding its specific rules.

After the funds are transferred, your beneficiary is free to use them as he or she pleases, unless you establish a trust. A spouse may remarry, or simply change his or her mind about providing for the children from your first marriage. If this is a concern, consider naming a trust as the beneficiary.

You may want to influence the beneficiary’s decision to keep your investments right where they are invested, supporting ministry as opposed to liquidation. If this is your plan, you should be aware of some of the issues that can contribute to the success of the investment transfer to the successor generation. Some of the issues revolve around personality and control, while others have to do with your potential need for income and the demands it can place on them. Insight, planning, and open discussion can contribute to the successful transfer and continuation of a Kingdom investment. The senior generation may be trying to determine their intended legacy after control of the asset has transferred. The successor generation may be trying to determine how they will continue fulfilling that legacy once they take over the investment. It can be hard for the parents to realize that the children are capable of making sound investment planning decisions. One way to help ease this tension is to engage in early training of those family members who are made aware of the investment. And remember to revisit your beneficiary list and update as needed.

Joseph Padilla brings a topic that I strongly believe in for all families that underscores the importance of planning in advance to prevent, or at least minimize, strain on family relationships.

Will Your Children Still Get Along When You're Gone?

By Joseph Padilla, The Orchard Foundation

Even in the best Christian families, children argue over the details of their parent(s) Will or Trust. Unfortunately, they sometimes stop speaking to each other for years, fracturing the family. This is certainly not honoring to God and not the legacy we want to leave behind for our children. Here are three things you can do to help ensure your children are still hugging each other long after you're gone:

  • Avoid naming one of your children as your executor and/or trustee. Even if they are mature and trustworthy, their siblings may still accuse them of wrongdoing as they carry out your wishes.

  • Chances are your children will disagree over who gets grandma's dresser before they will dispute over $50,000 in cash. So, be sure to create a Personal Property Memorandum to accompany your Will or Trust that identifies who gets which family heirloom.

  • Although your children are probably quite different from each other, treat them equally, if possible. For example, if you had a daughter who is a missionary and a son who is a doctor, you may want to give your daughter more, based on need, and that's okay. However, if you do this, be sure your son understands why his sister is receiving more of the inheritance. Treating them unequally is not worth damaging their relationship.

There are plenty of other things to consider as well. The good news is that we have a free Will and Trust Planning Ministry to help you in this important area of stewardship. For more information, contact us toll free at 1-888-689-6300 or email us at service@orchardalliance.org.

 
Rob Pease