Providing Things Honest: Beneficiary Designation Forms

The simplicity of the beneficiary designation forms belies their importance. When filling out such a form, be exact, complete, and keep the following in mind.

Failing to name beneficiaries on your IRA (or mistakenly assigning it to your Estate) prevents your heirs from maintaining the tax-advantage growth of an IRA over the beneficiary’s lifetime (via a stretch IRA). Without a beneficiary, your IRA money will go through probate, and your family (excluding spouses) will be required to withdraw the money within five years of your death (with significant tax consequences).

If you set up a Trust in your Will for any minor children and you want your minor children to be the beneficiary of a non-probate asset, you must designate the Testamentary Trust as the beneficiary and not the minor child.

You should review your beneficiary forms periodically in case circumstances have changed in your life and you want to change your designated beneficiaries.

If you name a primary beneficiary who is no longer alive at the time of your death, and no secondary beneficiary is named, the Court will have to decide who gets the money that would have passed to the designated beneficiary. Remember, you can name multiple primary and secondary beneficiaries – just be clear how you want the particular non-probate asset to be divided.

If you need to update beneficiary designation forms do not merely mark up the old forms and initial the changes since this will not be acceptable in Court. To override or change old designations, you should complete new forms, make a copy for your file and provide the new form to the appropriate company that issued, or is in possession of, the non-probate property.

Finally, do not assume that a beneficiary designation form you completed several years ago is still in the company’s file. You should always keep a copy of the beneficiary designation form for every bank, investment fund, and insurance company that issues, or is holding a particular type of non-probate property, and then periodically check with that company to make sure that the original is still on file.


The use of a “Trust” may be a wise choice in certain situations (i.e., when the beneficiary is disabled or when there is a large estate or an estate with young beneficiaries). Trusts are not right, however, for everyone’s situation. Trusts can be created during the life of the person creating the Trust (known as a Living Trust) or by Will (known as a Testamentary Trust). Living Trusts and Wills that contain Testamentary Trusts usually cost more money to create than simple Wills because they are more complicated and must be customized for each particular situation. When deciding whether it makes sense to create a Trust, you should consider whether the benefits of the Trust are sufficient to justify the added costs of creating and administering the Trust.


A Special Needs Trust can be used by a parent or grandparent who wishes to set aside money for a disabled child but hesitates to do so for fear of disqualifying the disabled child from certain government benefits. A parent or grandparent could place the money in a carefully drafted Trust, designate a Trustee to invest and safeguard the funds and enable the disabled child to benefit from the Trust while maintaining eligibility for government benefits for medical care, physical and occupational therapy, education, special housing, etc. Depending on the circumstances, a Special Needs Trust may be created in your Will or during one’s life.


A Testamentary Trust is often used to provide asset management for family members who are not capable of managing an inheritance themselves (such as minor children, persons suffering from disabilities, or persons who are not good at managing money). Discretionary Trusts and Income Only Trusts can be written to protect spendthrift beneficiaries from squandering their inheritance through wasteful spending habits. Trusts also can be used to set aside money for specific purposes such as education. Credit Shelter Trusts (also known as By-Pass Trusts or Spillover Trusts) are commonly used to help protect large estates from federal estate taxes by taking advantage of the unified credit of the first spouse to die. The United States Congress recently increased this unified credit exemption from the federal estate tax to $5,000,000 for the years 2011 and 2012. This $5,000,000 exemption, combined with new portability provisions and provisions involving life-time gifts, should permit many affluent couples to simplify their estate planning and allow them to leave their assets outright to the surviving spouse instead of using a cumbersome and expensive Credit Shelter Trust. As a result of this large increase in the unified credit exemption (as well as the additional provisions contained in the new federal estate tax law), anyone who presently has a Credit Shelter Trust in their Will may want to revisit the need for such a Trust with their attorney.


In addition to creating a Trust at your death through your Will, you may want to consider creating a Living Trust during your life. A Living Trust can be either irrevocable or revocable.


When you create an Irrevocable Living Trust, you are making a current gift and giving up control of any property you give to the Trust. An Irrevocable Living Trust may make sense if you wanted to reduce the size of your estate to avoid estate or inheritance taxes. An Irrevocable Living Trust can be used to make a large gift during your lifetime to someone who is not capable of managing the money, such as a child or someone suffering from a disability. Ordinarily when people refer to a Living Trust, however, they are talking about a Revocable Living Trust.

– To be continued