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Possible drawbacks of overusing beneficiary designations

Some people in Florida may have retirement accounts and life insurance policies that have beneficiary designations. This is a common way to pass these assets, and it keeps them out of the probate process. However, some people may be encouraged by financial advisers to use similar means to pass other assets as well. Unfortunately, this can have serious repercussions for an estate plan.

Options such as transfer-on-death accounts or payable-on-death accounts for checking, savings, bonds, certificate of deposits or investment accounts also allow those assets to be passed directly without going through the probate process. However, this option is often presented with overemphasis on the advantages of avoiding probate and too little information about potential drawbacks or investigation into how the estate plan might be affected.

For example, a carefully prepared estate plan may make use of tax savings strategies with trusts. If these accounts have beneficiary designations instead of funding the trust, these strategies could be wasted. There might not be enough assets to fund trusts at all. Trusts can also provide protection against creditors and other threats, which a beneficiary designation cannot provide. If most assets pass via beneficiary designation, there might be insufficient funding in the estate plan to pay for administration costs. Beneficiaries might also be left liable for estate tax.

Beneficiary designations override instructions in a will, so it is important to ensure that they are consistent with estate plans. People who are creating an estate plan with the assistance of an attorney should try to be thorough in discussing all their assets and should understand the ramifications of making changes to the plan. Estate plan do need to be reviewed periodically. As families, assets and laws change, estate planning strategies may need to change as well.



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