VanNess & VanNess, P.A.

Important facts about beneficiary designations

Florida residents who are considering who to name as beneficiaries under their life insurance policies or retirement accounts should keep some important considerations in mind. Beneficiary designations can be made to anyone who is not a minor, and they override what is written in a will. This means that it is critical to keep the designations up to date and to review them routinely as well as after any major life changes.

People should also think about how taxes will affect what their loved one receives. For example, a person who is not a spouse and is named as the beneficiary of a retirement account may be required to pay taxes on mandatory distributions, and in other cases there may be future federal estate consequences for beneficiaries as well, depending upon the size of their estate when they die. As a result, people may want to discuss the designation in advance with their proposed choices.

One common mistake is naming a single beneficiary with the assumption that the designee will understand how the assets should be distributed. The beneficiary may not do so or may not know what the person's wishes were. The designee might also be liable for taxes on the total amount even though a plan to distribute it is in place.

People should also learn about other aspects of estate planning, such as naming a guardian for minor children in their wills. Attorneys may suggest other types of documents that can serve to protect and preserve a client's assets. For example, the use of a power of attorney can enable a trusted person who is appointed as attorney-in-fact the power to make financial decisions in the event of the client's incapacity.

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