What are assets with beneficiary designations and how should they be treated?
One vital part of the estate planning process is making sure that assets with beneficiary designations are updated to be consistent with the other provisions of your estate planning documents. In general, this means that you want these assets to be distributed in a manner that is similar to how the other assets in your trust are distributed.
Assets with Beneficiary Designations
Generally, assets with beneficiary designations include life insurance policies, retirement accounts (such as IRAs and 401ks), as well as Pay-on-Death (aka "POD") accounts.
In cases where spouses are married, it is often beneficial to have each spouse name one another as the primary beneficiary of retirement accounts. This gives a spouse the chance to inherit the other spouse's retirement account and continue the tax-deferred growth of that asset. In this scenario, usually the couples' joint living trust will be named as the secondary beneficiary on the retirement account.
Naming Minors as Beneficiaries
If your plan calls for naming minors as beneficiaries, you will want to make sure that the forms provide that the money will be held in a custodial account (often called "CUTMA" accounts) until a certain specified age (usually between 18 and 25). Without having such a provision, it's possible that a special person has to be appointed by a Court to receive and account for the money.
For some of you, especially those of you who have been diligent in contributing towards your retirement accounts, these types of assets can represent a significant portion of your assets. By planning properly, you not only ensure that the proper people receive these assets, but also significantly reduce potential tax consequences.