Understanding Beneficiary and Fiduciary Designations for Your New Jersey Estate Plan
Your estate plan in New Jersey can include several documents, many of which may require beneficiaries, like a will and any trusts you may have set up or intend to set up and non-probate assets like 401(k), IRA accounts, life insurance policies, and pensions. Assets from these accounts will go to the beneficiaries upon your death. It is important, therefore, to make sure you choose your beneficiaries carefully. Likewise, your fiduciaries must be equally chosen with careful thought.
You may think it's a simple thing to do: choose those closest to you whom you want to benefit from your estate and your life's work. Sometimes, however, it is not as easy as that. There are many different factors to consider and different types of beneficiaries and fiduciaries to identify. At Hartmann Law LLC, our estate planning attorney based in New Jersey handles all types of estate plans and can explain the importance of beneficiary designations so that you are confident in your choices. Contact us today at 856-244-7776 to schedule a free initial consultation and to make sure your estate plan includes the beneficiaries you want to protect if anything should happen to you.
What are Beneficiary Designations?
A beneficiary designation involves naming the person who will directly receive an asset in the event of the death of its owner. Assets that allow for beneficiary designations include insurance policies, retirement accounts such as 401(k) plans, annuities, and other financial accounts. Trusts also require beneficiary designations. You can also choose beneficiaries in your Last Will and Testament.
To note, beneficiaries are slightly different from heirs. Beneficiaries are chosen while heirs (though they can be chosen) are those who inherit the property of a person who dies intestate, or without a will.
The designation process for non-probate assets ensures the named beneficiary directly receives the asset, rather than it passing to the estate and going through probate, which can cost significant time and money.
What are Fiduciary Designations?
A fiduciary designation involves naming a person or entity who will be given a duty to act on behalf of another. In the context to estate planning, fiduciaries are those named to act on behalf of the grantor of the power, the estate or the beneficiaries of the estate. For example, a will may name an executor, guardian and trustee. A power of attorney or health care directive may name an agent. A trust may name a trustee and trust protector.
Common Types of Beneficiaries in New Jersey
Common categories of beneficiaries include eligible designated beneficiaries, designated beneficiaries, not designated beneficiaries, and contingent beneficiaries. Different eligibility rules may apply to different types of beneficiaries.
Eligible Designated Beneficiaries
Eligible designated beneficiaries include:
- Children under 18 years of age
- Individuals with a disability
- Chronically ill individuals
- Individuals within 10 years of age of the deceased
Eligible designated beneficiaries have additional rights to designated beneficiaries.
A designated beneficiary is any living person who does not fall into the above categories. This may include a friend or extended family members, such as elderly parents or a sibling.
Not Designated Beneficiaries
A not designated beneficiary is a non-living beneficiary, such as a charity, trust, or estate.
A contingent beneficiary is a “backup” beneficiary who receives the asset in the event the primary beneficiary is unable to.
Factors to Consider When Choosing a Beneficiary
When choosing a beneficiary, here are some points to keep in mind.
A beneficiary typically must be over 18 years of age. If you want to gift an asset to a minor upon your death, you may need to set up a trust and designate the trust as the beneficiary.
Your financial dependents are a good starting point when considering who to designate as a beneficiary. This may include your spouse, children, or other extended family members.
A beneficiary generally must have an insurable interest in the insured person. This means there must be a legitimate financial interest between the two, such as in the case of dependent children or a spouse.
Policy Specific Rules
Some life insurance policies or pension funds set rules for designating a beneficiary. Make sure you are aware of these before making your decision and seek legal and financial advice about your options.
Revocability vs. Irrevocability
Depending on the document and the terms of the contract, some beneficiaries may be irrevocable. This means you cannot revoke their rights unless they agree to it. At first glance, you may wonder why you would want to designate beneficiaries as irrevocable, but there are benefits. An estate planning attorney can illuminate the reasons and situations where irrevocable beneficiary designations may be most appropriate (or not).
What Challenges Can Arise with Beneficiary Designations in New Jersey ?
The best way to avoid most potential issues when it comes to beneficiary designation is to speak with a lawyer to ensure your designation is valid.
Here are some common challenges that may arise when designating a beneficiary.
Fixed Dollar Amounts
When designating a beneficiary, it is possible to set either a fixed dollar amount or percentage they will receive. However, a fixed dollar amount can cause issues if the value of the asset is insufficient (or if it increases in value, leaving a portion of the asset to probate). To avoid this, assign a percentage value instead.
No Contingent Beneficiary
Failing to name a contingent beneficiary may result in your asset going through probate. To avoid this, identify a contingent beneficiary who will receive the asset in the event the primary beneficiary cannot accept it––for example, where they have passed away.
Naming the Wrong Beneficiary
The identity of a named beneficiary may not be clear––for example, if several people in the family share the same or similar name. Names may also change as a result of marriage or divorce. Always confirm the correct legal name of your intended designated beneficiary and ensure you update the document to reflect any name changes.
“All My Children”
Designating “all my children” can create challenges. For example, if a child beneficiary dies before their parent, it may be unclear as to how their portion should be distributed. It may be divided between the surviving children, or instead, pass to their offspring. To avoid this issue, be specific when naming a beneficiary.
Contact Hartmann Law Today
Contact Hartmann Law to learn more about Beneficiary Designations and Estate Planning. Take steps to start your Life and Legacy planning today! Take action to ensure you voice is heard when you are unable to speak for yourself. Make the decision to protect yourself, your loved ones, your business, your property by design and not by default!
Schedule a call today with Hartmann Law, providing Life and Legacy plans ready for today with an eye on the future.