Understanding Beneficiary Designations for Your Texas Estate Plan

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Your estate plan in Texas may include several documents, accounts, policies, etc., many of which may name beneficiaries, like any trusts you may have set up or intend to set up and non-probate assets like 401(k), IRA accounts, life insurance policies, bank and other financial accounts and pensions. Assets from these sources typically pass to the named beneficiaries upon your death. If no beneficiaries are named, these assets typically will be paid to your estate, which may not be the best way to handle them.  It is important, therefore, to coordinate them with each other and your Will and make sure you choose your beneficiaries carefully. 

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 to identify, and their personal circumstances. Are they in a lawsuit, are they going through a divorce, are they incapacitated, do they suffer from addictions, are they able to manage their financial affairs, are they minors, etc. At Adams, King, & Smith, our estate planning attorney based in Longview Texas 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 (903) 757-3331 to schedule a FREE CONSULTATION FOR WILLS, PROBATE OF A WILL, OR ESTATE PLANNING TO INCLUDE TRUSTS and to make sure your estate plan includes the beneficiaries you want to protect if anything should happen to you.

Beneficiary Designations

A beneficiary designation involves naming the person who will directly receive an asset upon the owner's death. Assets that allow for beneficiary designations include insurance policies, retirement accounts such as 401(k) plans, annuities, and bank and other financial accounts. Trusts also designate beneficiary designations. You  also choose beneficiaries in your Last Will and Testament. 

To note, beneficiaries are slightly different from heirs. Beneficiaries are chosen by you,  while heirs (though they can be and often are chosen as beneficiaries ) are chosen by the government,  i.e., those who inherit the property of a person who dies without a Will (intestate)  and are set out by state law. You may not like those choices. 

The designation process for what are referred to as non-probate assets (assuming there are named or designated beneficiaries) like 401(k), IRA accounts, life insurance policies, bank and other financial accounts and pensions 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. 

Common Types of Beneficiaries in Texas

Common categories of beneficiaries include designated beneficiaries, and contingent beneficiaries. 

Common Designated Beneficiaries

Designated beneficiaries often include:

  • Spouses
  • Children  
  • Relatives to whom you are close
  • Churches or Faith organizations 
  • Charitable organizations

Contingent Beneficiaries

A contingent beneficiary is a “backup” beneficiary who receives the asset in the event the primary beneficiary does not, typically because the primary beneficiary has passed away or the Charity no longer exists. 

What Documents in an Estate Plan Need Beneficiaries Listed?

Most non-probate assets and documents should have at least one beneficiary  listed, and it is often a good idea to name one or more  contingent or alternate beneficiaries. This includes:

  • Bank and financial accounts
  • Brokerage accounts
  • 401(k) accounts
  • Pensions
  • Life insurance policies
  • Revocable trusts
  • Irrevocable trusts

Usually,  assets from these  are not paid to the estate because then they would have to go through probate, and it is often preferable to avoid that.  Properly made beneficiary designations would control their distribution and override   contrary provisions in a Will regarding the same assets.  In those circumstances, the Will does not control. 

Factors to Consider When Choosing a Beneficiary in Texas

When choosing a beneficiary, here are some points to keep in mind.

Age

A beneficiary typically should be over 18 years of age, or 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 or make some alternate plan. 

Financial Support

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.

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. 

Challenges that can Arise in Texas with Beneficiary Designations

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 diminishes over time. 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 or alternate beneficiary who will receive the asset in the event the primary beneficiary cannot accept it––for example, where the primary beneficiary has 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 cause controversy over  their portion should be distributed. It may be divided between the surviving children, or instead, pass to their offspring. To avoid this issue, legal advice is important. 

Contact an Estate Planning Lawyer in Longview Today 

You have worked hard and have planned well and want to make sure your loved ones are secure in the event something happens to you. At Adams, King, & Smith, our estate planning attorney in  Longview, Gregg County, Texas helps families create comprehensive, inclusive estate plans that address varied  situations and challenges. We will make every effort to help you and your beneficiaries get what you intend to achieve through your estate planning. Contact us either by filling out the online form or calling us at (903) 757-3331 to schedule a FREE CONSULTATION FOR WILLS, PROBATE OF A WILL, OR ESTATE PLANNING TO INCLUDE TRUSTS.

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