Determining a Beneficiary Designation and Your Estate Plan

When you open an account at the bank or with an investment firm, you may be asked to name beneficiaries who will receive those funds after you pass away. You may also name another person as a co-owner to help manage the account, especially if you anticipate a time when you will be unable to handle your own banking. What are the possible consequences of those decisions? Are there other ways to delegate some decision-making without giving someone full access to your account? Let’s consider.

Beneficiary designations.

Naming someone as a beneficiary of your account means the money in that account will transfer to them after you pass away. These assets can pass to the beneficiary without having to go through probate. Beneficiary designations override instructions you might have laid out in your Last Will and Testament, so it’s important to carefully consider how these decisions fit within your overall estate plan.

Adding a co-owner.

Do you need help (or will you later need help) from an adult son or daughter to manage your account? Maybe you are concerned about your continued ability to physically get to the bank, or you are worried that a diagnosis such as Alzheimer’s might limit your ability to make responsible financial decisions. You might want someone else to keep their eyes on the account and be prepared to step in if you are unable. Adding a co-owner to the account could be an option, but you should be very cautious about taking this step:

• Co-owners inherit before beneficiaries. Say you have two adult children. You want both of them to inherit equally, but your daughter is more financially responsible than your son. You are concerned that your son won’t manage your finances well, so you don’t want to make him a co-owner. If you name only your daughter as an account co-owner, upon your death she will inherit the full contents of the account. You will have to trust her to pass on 50% of the account contents to your son, but she will not be legally bound to do so. You might accidentally set them up for family conflict.
• Co-owners could be exploitative. Your assets will be available to anyone you name as a co-owner. It is not uncommon for children or grandchildren to take advantage of access to accounts to make purchases the elder family member might not know about or approve of. If you have any reason to suspect a family member might use your funds in an inappropriate way, you should not add that person as a co-owner.
• Adding a joint owner to an account can have consequences for Medicaid and VA benefits. If you name a co-owner to an account and you co-mingle money, it can be a problem for benefits programs. That money can be subject to spend down. The co-owner may lose the money they have kept in the account, or your qualification for the benefits you need to pay for long-term care may be delayed or denied.

Legal alternatives.

Do you want to delegate access to your accounts without disrupting your wishes for your loved ones’ inheritance? There are legal solutions that let you have the best of both worlds. For example, you can add beneficiary designations to determine the path of inheritance while naming another person (or people) as your attorney-in-fact on a Durable Power of Attorney. In the example from above, both your son and daughter might be account beneficiaries, but you could name your daughter only as your POA. Your daughter could present the POA document to the bank and other financial institutions to get access to your accounts and help you manage your affairs. She would have no control over who inherits what. When you passed away, the accounts would be divided 50/50 between your son and daughter according to your beneficiary designations.

No planning.

What happens if you don’t name beneficiaries, co-owners, or a power of attorney? If you have a Will but no beneficiary designations, your funds will pass according to the instructions of your

Will. Without either a Will or beneficiary designations, your surviving loved ones will have to open your estate in probate court, and the court will decide who inherits based on the law. This can be a time-consuming and expensive process for your grieving loved ones. If you don’t name either a co-owner or a power of attorney, you and your loved ones could have trouble paying your bills and managing your money if you become temporarily or permanently incapacitated. There

is another court process to address this situation – conservatorship – and like probate, it can be long and expensive. For both financial decision-making and inheritance, planning proactively can save your family time, money, and a lot of stress.

Professional help. 

You should talk to your financial advisor, representatives from companies where you own accounts, and your elder law attorney about the best strategy for controlling inheritance and delegating decision-making power. Talk with them openly about family dynamics and any other factors that may influence the plan. Make sure these professionals are also communicating with one another so that the plan is clear. That’s the best way to avoid unwelcome and expensive surprises for yourself or your loved ones in the future.