The majority of individuals have a multitude of opportunities to designate beneficiaries. Most often beneficiaries are designated in Wills, on policies of life insurance, and on retirement accounts. No matter what you choose in your Will, if you designate a beneficiary on your insurance policy or retirement account, that policy or account will pass to the designated beneficiary. In other words, if your Will says that you leave everything to your favorite niece, but your parents are the beneficiaries named on your life insurance or retirement fund, your parents will receive the life insurance and retirement.
Naming minor children as beneficiaries of life insurance is rarely a good idea. A guardianship would need to be established to manage the funds during minority. These types of “financial” guardianship proceedings can be expensive, with frequent reporting to a Court required. A better option is to name a Trustee of a trust within your Will to receive the proceeds and nomination of a Guardian for only the physical care and custody of a child.
It is also important to periodically review any and all beneficiary designations. Outdated beneficiary designations can occasionally have devastating consequences. For example, if a former spouse is designated as the beneficiary of life insurance, a second spouse and children will be left without any such benefit. Likewise, leaving elderly parents as beneficiaries of life and/or retirement benefits can have unintended consequences. Sadly, all too often outdated beneficiary designations remain in place.
Beneficiary designations are a critical part of estate planning, both in a Will or a trust, but also on policies or accounts. However, as time goes by it is important to review, reconsider and periodically update all of your beneficiary designations.
Anne Hensley Poindexter, Partner
CAMPELL KYLE PROFFITT LLP