Why Can't I Just Use Beneficiary Designations?

I recently had a family come into my office and say to me during our meeting together … “why can’t we just use beneficiary designations.” That’s a great question! What are beneficiary designations.

A beneficiary designation is a designation that you will put on a financial account which will direct the account to transfer to that named individual upon death. The main benefit of beneficiary designations is that they occur immediately after death upon the presentment of a valid death certificate to the financial institution. This means that they do not become part of your probate estate and are transferred outside of probate.

So, this begs the question, why can’t I just use beneficiary designations to dispose of my estate? Well, there are a number of reasons.

First, you cannot dispose of your tangible personal property by beneficiary designations. Your tangible personal property are probate assets and must be distributed to your heirs via the probate court system.

Second, your real estate, although transfers to your heirs at law immediately after death, can be brought into your probate estate under a number of circumstances.

Finally, if the beneficiary listed on your beneficiary designation is either a minor (under the age of 18), incompetent or incapacitated, or deceased, then the beneficiary cannot inherit directly. This means that a court proceeding must be initiated to oversee the acceptance of their inheritance that occurred via beneficiary designations. In these instances, a desire to avoid probate can result in probate occurring due to not being careful in a family’s planning.

However, even more importantly, simply naming beneficiary designations on your financial accounts can be one of the worst estate planning mistakes that you can make. Most importantly, naming a beneficiary on your financial account can result in your loved ones’ inheritance being subject to divorcing spouses, creditor claims, lawsuits, and other predators. This is something that many families fail to consider and to plan in a manner that will truly protect their loved ones, children, and grandchildren for years to come.

If you have more questions about beneficiary designations and how to plan your estate in a manner where you can truly leave a legacy for your family, please contact your Nashville, Tennessee Estate Planning Attorney, Dan Perry, by calling our office at (615) 472-2482 so that we can assist you and your family with developing the perfect estate planning strategy to assist you now and in the future.

Daniel A. Perry
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Focused on helping seniors, individuals with disabilities and small business owners make informed decisions.