Beneficiary Designations In Ohio

Make Sure Your Beneficiary Designations Support Your Estate Plan

A will or trust is an important part of planning for the future, but it may not control what happens to every asset you own. Life insurance policies, retirement accounts, investment accounts and other assets frequently pass according to beneficiary designation forms completed with the financial institution or plan administrator.

These designations may appear simple, but they can have a significant effect on how your property is distributed. An outdated, incomplete or poorly coordinated designation can unintentionally leave assets to the wrong person, expose an inheritance to unnecessary complications or undermine the estate plan you carefully created.

Since 1980, the attorneys at Ibold & O’Brien have helped individuals and families in Chardon, Orwell, the greater Cleveland metro area and communities throughout Northeast Ohio plan for the future. We can review your beneficiary designations as part of a comprehensive estate plan and help ensure that your assets pass according to your wishes.

What Is A Beneficiary Designation?

A beneficiary designation is an instruction identifying the person, trust, charity or other organization that should receive a particular asset after your death.

Assets that commonly allow beneficiary designations include:

• Life insurance policies
• Individual retirement accounts, including traditional and Roth IRAs
• Employer-sponsored retirement plans, including 401(k) and 403(b) accounts
• Annuities
• Pensions and certain employment benefits
• Payable-on-death bank accounts
• Transfer-on-death investment accounts
• Certain securities
• Real estate subject to a properly prepared and recorded transfer-on-death designation affidavit

The named beneficiary generally receives the asset directly after the owner’s death, subject to the requirements of the institution holding the account or administering the benefit. When properly structured, this transfer commonly occurs outside of probate.

Beneficiary Designations May Override Instructions In Your Will

One of the most important things to understand is that beneficiary designations generally operate independently from your will.

For example, suppose your will divides your estate equally among your three children, but an old life insurance policy names only one child as its beneficiary. The insurance proceeds will ordinarily be paid according to the policy’s beneficiary designation—not divided according to the terms of your will.

The same concern may arise with retirement accounts, payable-on-death accounts and other assets transferred by contract. Updating your will without reviewing these accounts can leave you with documents that appear complete but produce a very different result than you intended.

A coordinated estate plan considers both your legal documents and the way each significant asset is owned or designated.

Primary And Contingent Beneficiaries

Most beneficiary forms allow you to name both primary and contingent beneficiaries.

A primary beneficiary is the first person or organization entitled to receive the asset. A contingent beneficiary receives it if the primary beneficiary dies before you, disclaims the inheritance or is otherwise unable to receive it.

Naming contingent beneficiaries can prevent an asset from being paid to your estate if the primary beneficiary does not survive you. It can also provide greater control over what happens when family circumstances change.

When naming multiple beneficiaries, it is also important to verify:

• What percentage each beneficiary should receive
• Whether the percentages total 100%
• What happens if one beneficiary dies before you
• Whether that beneficiary’s share passes to their descendants or to the surviving beneficiaries
• Whether a trust should be named instead of an individual

The wording and options used on beneficiary forms can differ among insurance companies, employers and financial institutions. Those differences deserve careful attention.

When Naming A Person Directly May Create Problems

Naming an adult family member directly is sometimes appropriate, but it is not the right choice in every situation.

Additional planning may be needed when a beneficiary:

• Is a minor
• Has a disability or receives means-tested government benefits
• Has difficulty managing money
• Is experiencing creditor, bankruptcy or divorce concerns
• Struggles with addiction
• May require long-term financial protection
• Should receive the inheritance over time rather than all at once

A minor generally cannot manage a substantial inheritance independently. Naming a minor directly may therefore require a custodian, guardian or other arrangement to manage the property.

Leaving assets directly to a person with special needs can also affect eligibility for certain public benefits. In appropriate cases, naming a properly established trust may provide greater protection and allow the inheritance to be managed according to your instructions.

Our attorneys can help you evaluate whether an individual, trust or other arrangement is the best beneficiary for each asset.

Review Your Designations After Major Life Changes

Beneficiary designations should not be completed once and then forgotten. They should be reviewed periodically and whenever an important change occurs in your life or family.

A review is particularly important after:

• Marriage or remarriage
• Divorce, dissolution or annulment
• The birth or adoption of a child
• The death of a beneficiary
• A beneficiary’s marriage or divorce
• A diagnosis of disability or serious illness
• A substantial change in your finances
• Opening or transferring a retirement or investment account
• Changing jobs or retiring
• Creating or amending a will or trust

Ohio law may revoke certain designations involving a former spouse following a divorce, dissolution or annulment. However, the application of state law can depend on the type of asset, the governing documents and whether federal law applies. It is safer to update the actual beneficiary forms than to assume a divorce decree or statute will automatically produce the intended result.

Coordinating Beneficiary Designations With Wills And Trusts

Beneficiary designations should work together with the other components of your estate plan, including your:

• Will
• Revocable or irrevocable trust
• Financial power of attorney
• Health care power of attorney
• Living will and advance directives
• Business succession plan
• Real estate ownership documents

This coordination becomes especially important when a trust is intended to manage an inheritance. Creating a trust does not necessarily cause assets to pass into it. The trust may need to be named as a beneficiary, or ownership of particular assets may need to be changed.

Retirement accounts require additional care because different distribution and tax rules may apply depending on whether the beneficiary is a spouse, another individual, a trust, a charity or an estate. A beneficiary decision that appears convenient today can create significant consequences later.

Beneficiary Designation Mistakes To Avoid

Common mistakes include:

• Leaving a deceased person named as beneficiary
• Failing to name contingent beneficiaries
• Naming minor children directly
• Using an outdated name or incomplete identifying information
• Assuming a will overrides the beneficiary form
• Failing to update an account after divorce or remarriage
• Naming an estate when that result was not intended
• Creating a trust without coordinating account designations
• Failing to consider the effect of an inheritance on public benefits
• Forgetting older policies or accounts
• Assuming designations automatically carry over when an account is transferred

Even a carefully prepared estate plan can be disrupted by one forgotten form. Periodic reviews allow you to identify problems while they can still be corrected.