Most financial accounts allow beneficiaries to be designated, so that upon your death, the funds in the account can be directly distributed to those persons. Such accounts include your bank accounts, retirement accounts, and brokerage accounts. With such designations, probate (the court supervised procedure for the distribution of your estate if you die without a will) will be avoided for these assets. Such “non-probate” transfers allow the beneficiary you have designated to receive the funds arguably quicker than usual, upon the showing of proper identification and a death certificate. While this may be a useful tool, there are several points to consider.

If you have only one beneficiary in mind, such as one child, it is common to name that child as a “pay-on-death” or “transfer-on-death” beneficiary of an account. While the beneficiary does not have access to the funds while you are alive since they are not account owners, upon your death they would receive the funds outright. As stated above, it can be a quick way to get funds to your child/beneficiary without too much of a hassle upon your death. Keep in mind that they would only have access to the funds upon your death, and not during your incapacity. For example, if you were involved in a car accident and your child needed access to the funds to pay for any expenses, they would not be able to use those funds. Other problems that can arise are when one child is designated as a beneficiary, but you have multiple children; or when you designate someone only so that they can continue to pay for the expenses and needs for any dependents you might have.

When you designate your oldest child as the only beneficiary, for example, you might have done this thinking that they would still share the funds with your other children. Legally, they do not have to do this. They are the only named beneficiary, and as such, receive the funds and have no legal obligation to split the funds with anyone else. The same applies to the beneficiary you designated to continue taking care of your dependents. Even though you asked them only to use these funds to continue taking care of any dependents you were supporting during your lifetime, they have no legal obligation to do so.

Another point to consider is inconsistency between any estate planning documents you have executed and these beneficiary designations. For example, if you have stated that your estate should be divided between three individuals, but you have designated only two of those individuals on a certain account, it can create confusion during the administration of your estate. As you can see, although beneficiary designations can seem helpful, every situation is different. If you would like to discuss in further detail beneficiary designations and creating estate plans to avoid any future potential issues, feel free to call us and schedule a complimentary initial consultation.818.956.9200

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