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Designating beneficiaries on certain accounts

Many New Jersey residents have retirement plans, annuities and life insurance policies. These accounts do not pass through probate but instead go directly to beneficiaries through forms filed with the company for each account. How these forms are filled out can have an impact on an individual's estate.

The first issue to be aware of is the fact that minors cannot be named on beneficiary designations. Any accounts left to a minor will need special handling. In addition, since these accounts pass directly to the beneficiary without going through the probate process, any bequest in a will that is contrary to what is on file with the company holding the account will not be honored. Therefore, it is important to be sure that the individual named on the account is the person intended to receive it.

This necessitates a periodic review of the beneficiary designations to be sure they are up-to-date. In fact, any major life event warrants a review. For example, if an individual gets married, has a child, or gets a divorce, the beneficiary may need to be changed.

The tax ramifications of naming a certain beneficiary may also need to be researched so that he or she receives the maximum benefit from the account. It is also important to name each party an individual wants to inherit the account. Leaving it to one person whom he or she expects to further distribute the funds is problematic at best. The beneficiary is under no obligation to share the proceeds of the account, and the company has no obligation to fulfill the account holder's wishes outside of the beneficiary designation form.

These accounts are valuable estate-planning tools. However, as is seen here, choosing and identifying the beneficiaries is crucial. In order to be sure that the account passes to the right person in the way a New Jersey resident intends, it may be beneficial to review the options with someone familiar with estate planning.

Source: morningstar.com, "How to Handle Beneficiary Designations", Christine Benz, Oct. 10, 2014

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