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Pass on Your Assets Wisely: How to Choose the Right Beneficiaries

Mark Eghrari, Contributor, Forbes
July 17, 2017

When you pass away, what you leave to your loved ones is important, but so is how you leave those assets. Determining the right assets to leave to different beneficiaries is an absolutely critical part of effective estate planning.

To show you why, let’s look at several common asset types and what you should consider when naming beneficiaries.

Life insurance. Proceeds from life insurance policies are paid to the beneficiary relatively quickly. Once proof of death is established the funds are paid within days or weeks. Consider who may need ready access to funds after you die. Rarely is that a minor child… and if you do name a child and fail to name a guardian or place the proceeds in a trust, the state may take over and assign someone to manage that money on your child’s behalf.

Assets distributed through a will. When you die your will must go through probate, a process that can take months and even years. No assets will be distributed until the probate process is complete. If you use a will as an estate planning tool, make sure the beneficiary of any property or assets specified in that will is in a position to wait. Or, better yet, create a revocable living trust to hold those assets. That way the trustee can distribute assets directly to beneficiaries without going through probate.

Retirement plans. Choosing the right beneficiaries of retirement plans can have major tax implications. The younger the recipient, the longer their life expectancy and the longer they have to withdraw funds from the plans — in the meantime, the account can continue to grow tax-deferred. (In short, a person who is 50 years old has a shorter life expectancy and must withdraw funds at a faster rate than a person who is 20.)

Also, consider naming a trust as the beneficiary of a retirement plan. Assets left in trust can enjoy asset protection from creditors, while a retirement plan inherited outside a trust does not. Plus, if a beneficiary is relatively young, a trustee that you designate can make distributions under conditions that you stipulate when you create the trust.

Finally, make sure that the beneficiaries named in your retirement and other financial accounts are consistent with your estate plan. For example, if your son John is named as the beneficiary of your 401(k) plan and your daughter Sue is named as the beneficiary in your will, the 401(k) plan designation supersedes the will and John will receive the proceeds.

Choosing the right beneficiaries for the right assets can be complicated, so consider making an appointment to ensure your plan covers all the financial and legal bases.

This article was written by Mark Eghrari from Forbes and was legally licensed through the NewsCred publisher network.

The strategies mentioned in this article will often have tax and legal consequences; therefore, it is important to bear in mind that First Republic does not provide tax or legal advice. This information is provided to you as-is, does not constitute legal advice, is governed by our Terms and Conditions of Use, and we are not acting as your attorney. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Clients' tax and legal affairs are their own responsibility. Clients should consult their own attorneys or other tax advisors in order to understand the tax and legal consequences of any strategies mentioned in this article.

The information in this article does not necessarily reflect the views of First Republic Bank.