Beneficiary designations, account titling (ownership arrangements), and traditional estate planning tools (trusts and last wills) work together to create a fully functioning estate plan. Another common mistake made with beneficiary designations and ownership arrangements includes naming a minor as a beneficiary.
Coordination of beneficiary designations and estate planning documents such as your last will and testament and/or trust is so important. Most parents establish testamentary trusts within their wills designating an age at which their children may have control over the assets left to them. Careful consideration is given to naming a trustee and guardian of their children. The trustee is authorized to manage trust assets until the child has reached the predetermined appropriate age. Although, the trust assets are available prior to reaching the appropriate age in the trustee’s discretion for the child’s health, education, maintenance or support.
Despite the carefully worded provisions contained in your last will and testament, if your minor (or young) child is named as the direct beneficiary of your life insurance policy, the proceeds will most likely be paid out to your child outright as soon as he or she reaches age eighteen. Generally, but not always, if you have minor children it is better to have a living trust own and hold the insurance policy or name your estate as beneficiary allowing the proceeds to be distributed to the testamentary trusts established for your minor (or young) children according to the terms of your last will and testament.
Over the next several posts we will explore these common mistakes in more detail.
To be continued….
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.