How to Make a Wise Decision when Appointing Trustees and Beneficiaries

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24th Jan 2017

One of the most important decisions you will ever make in your lifetime is whom to appoint as the trustee or beneficiary of your estate in the event of your death. Once you have filed your Final Will and Testament and/or started a new life insurance policy, you will be responsible to choose a designated beneficiary for your estate. This is a decision which you should take under careful consideration as this person will be responsible for all of your assets, including any monies, assets, and property upon your death.

The first thing you need to keep in mind is that this is your decision and no one else’s. You are not out to please anyone so you should not worry if you are offending anyone by not choosing them as the beneficiary of your will or the trustee of your estate. There are many factors to take into consideration when making this important decision, as it is not only an honor and a privilege, but a great responsibility. If you do not name a beneficiary, then the law will do so for you and no one will be able to contest the outcome of their decision. It is critical that you have all of this set in place upon the creation of your insurance policy or your living will.

Choosing a Life Insurance Beneficiary

It is recommended that you chose both a primary and contingent beneficiary when you create your life insurance policy. The primary beneficiary is the person (or persons) who will then receive the benefits of the insurance policy upon your passing. The contingent, or secondary, beneficiary will only receive the benefits if the primary beneficiary is no longer alive at the time of your passing.

You should also be aware that you can either chose a revocable or an irrevocable beneficiary at the time you set your beneficiary. In the event you should chose a revocable beneficiary you will be able to change the designated beneficiary at any time without getting content from the current beneficiary. Should you choose an irrevocable benificiary, you do not have the ability to change the beneficiary without the consent of the current beneficiary. Obviously If you wish to avoid any legal hassles you should opt for a revocable beneficiary.

Who to Consider when Choosing a Beneficiary/Trustee

  • Family: A family member such as dependant or spouse that is dependent on your for financial support should be your first choice.
  • Estate: It is totally acceptable to choose your estate as your beneficiary. The process of your insurance policy will then be left to the Administrator or Executor of your estate. Not only is it mandatory that this person to be named in your will, but they must be approved by the probate court. You must also make sure that you have addressed any tax concerns you may have in making your estate as your beneficiary.
  • Charitable Organization: You can leave the sum of your inheritance to a designated charity as either the primary or contingent beneficiary.
  • Trust: Before you can designate a trustee (or trustees) you must have the trusts) set in place and the trustees must be named prior.
  • Key Person Life Insurance: This pertains to businesses when they set up an insurance policy for key personnel within the company. In this instance, the company is slated as the beneficiary or any of the applicable policies. The business owner may also name their partner/co-owner as the beneficiary, which then enables that party to purchase the policy owner’s share of the business upon their passing.
  • Legal Guardian: If the person (or persons) whom you designate as your beneficiary are minors, you will be required by the insurance policy to designate a legal guardian as your beneficiary until the point that the minor is of legal age.

Other Factors to Consider

  • Always give the full name, date of birth and social security numbers of your beneficiaries.
  • You should definitely name a contingent beneficiary in the event that the primary beneficiary is no longer alive at the time of your death.
  • It is wise to designate monetary percentages to be left to each party as opposed to specific dollar amounts.
  • It is recommended that you update your policy periodically to ascertain that all information is correct. You should also amend your policy as needed for situations such as the death of a beneficiary or trustee, divorce, a new addition to the family or other such circumstances that may affect that term of your policy.
  • Never designate a creditor as a beneficiary of your estate.
  • Always make sure that you have a legal guardian listed on your policy if your beneficiary is a minor.
  • Make sure that you have included all of your desired heirs such as grandchildren, nieces, nephews, adopted or foster children and so forth as primary and/or contingent beneficiaries.
  • Do not use general terms such as “spouse,” “offspring” etc as in the event that you have divorced or separated and do not have a specific name listed as your beneficiary, as there could be extensive legal complications.
  • Never list your estate as the beneficiary unless you have designated specific family members to receive the benefits. If you do not do so, the monies can be caught up in the estate probate and hence this could result in potential tax compilations.
  • You should also take into account the parties that will be responsible for handling your funeral arrangements. This can be quite costly, so you should factor this cost into your decision when choosing a beneficiary.

Choosing a beneficiary and/or trustee is an important decision and should not be taken lightly.  You should consider the above factors before making a decision. It is always wise to seek legal advice when making such a crucial decision that will impact the lives of your loved ones. Tompkins Law can help you with any questions you may have about choosing a trustee or beneficiary. Contact us at 1-714-0044 for a consultation.

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