If you want to make sure that your assets are distributed fairly among your family, you may name multiple beneficiaries in your estate plan. While these unique distributions require more detailed documentation, they do allow you to share your nest egg with the people you love most. Even though this option may prevent conflicts (and it can!), it does come with several complications.
At Rice & Quattrone, PC, our New Jersey estate planning lawyers are here to help you develop an estate plan that aligns with your wishes while understanding the legal implications of each decision.
Pros of More Than One Beneficiary
Customization & Fairness
The most common reason that a decedent names multiple beneficiaries in an estate plan is peace of mind. You want to ensure the individuals’ needs are met and that the distributions show how much you value each relationship. You may choose to allot different percentages to each beneficiary or equal shares.
Reduced Conflict
A well-drafted estate plan can make your intentions clear when they might otherwise be unclear. Stating which beneficiaries receive which assets will reduce the risk of conflict among family members.
Avoids Probate for Certain Assets
Naming beneficiaries on life insurance policies, retirement plans, or payable-on-death (POD) or transfer-on-death (TOD) accounts allows these assets to bypass probate entirely (although that is not always prudent). Alternatively, if these accounts have no beneficiary, they will have to go through New Jersey’s Surrogate’s Court (contested matters, on the other hand, will be handled in the Superior Court, Chancery Division, Probate Part).
Cons
Inheritance Tax Exposure
New Jersey inheritance tax varies by the relationship of the beneficiary to the deceased, with more distant relatives paying higher taxes on their share. So, if you name multiple co-beneficiaries, including close relatives and more distant ones (nieces, nephews, friends), the more distant beneficiaries will face a greater tax exposure.
Disagreements Among Multiple Beneficiaries
If multiple beneficiaries share an asset (such as your home, brokerage account, or business), they may disagree about how to manage the jointly held property. Ultimately, the personal representative (PR) has the authority to decide what happens to disputed assets (while still bound by the terms stipulated in the will). In cases where beneficiaries believe that a PR is not acting in the estate’s best interest, the probate court may need to step in.
More Administrative Paperwork
When multiple beneficiaries are named to certain assets, additional paperwork must be filed with the court. Tax waivers or affidavits must be filed to release certain assets. For non-real estate investments, beneficiaries must file Form L-8; for real estate investments, they must file Form L-9.
However, both Form L-8 and Form L-9 apply to Class A-only estates or to estates where each beneficiary is a Class A beneficiary. Class A beneficiaries include spouses, domestic partners, children (through blood or adoption), parents, grandparents, and other lineal descendants. Descendant’s stepchildren are also included (but not step-grandchildren). The more beneficiaries named to an estate, the more paperwork is required, potentially slowing property distribution.
Creating a Trust
When multiple beneficiaries are being named on an estate, it may be a good idea to consider creating a trust. A trust can allow you to maintain control over how and when assets are distributed. This can be especially helpful when naming minor beneficiaries, who need extra structure. An irrevocable trust could help with other issues, such as long-term care planning and Inheritance Tax avoidance.
As always, at Rice & Quattrone, PC, we listen to your wishes to construct an estate plan that best meets your needs.
Reach Out to Our New Jersey Estate Planning Lawyers
If you have questions regarding beneficiary planning, our New Jersey estate planning lawyers are here to assist you. For over 30 years, Rice & Quattrone, PC, has assisted individuals in developing estate plans tailored to their needs. Whether you are interested in updating an existing plan or starting from scratch, our legal team is here to help. To arrange your consultation with one of our attorneys, contact us online or by calling (856) 673-0048 today.