Designated Beneficiaries
Often the term “designated beneficiaries” applies to individuals listed on particular accounts or policies, identified to receive the monetary assets in the event of a financial account holder’s death. Such assets may include retirement plans, checking and savings accounts, life insurance policies, or other financial accounts. Any assets that have named beneficiaries directly identified on title, or on the ownership certificate, are considered non-probate assets and will not be controlled by the decedent’s Last Will and Testament, nor the probate administration.
Many people are surprised to learn that not all assets associated with the decedent will be controlled by the decedent’s Last Will and Testament. The order of priority for what controls the distribution of an asset is listed as follows:
- Joint Ownership: controls first and foremost; immediately upon the death of a co-owner most liquid assets automatically pass to the surviving joint owner. Real property, aka real estate, held between a husband and wife has an automatic implied rights of survivorship feature. Real estate owned between non-spouses only passes to the survivor if “rights of survivorship” language is located on the deed.
- Named or Designated Beneficiaries: assuming there is no joint owner of the asset, the next element which will control distribution is the named beneficiary. The primary named beneficiary will be able to submit a death certificate to the financial institution and fill out the claim paperwork to collect the proceeds without the need for court involvement.
- Last Will and Testament: only controls probate assets. Probate assets are any assets that are titled in the sole name of the decedent, with no joint owners and no named beneficiaries directly identified on title.
Importance of Designating Beneficiaries
One critical mistake that many individuals make is that they forget, or fail, to update their beneficiary designations prior to death. Financial institutions are legally required to honor the designed beneficiaries on the account, regardless of what instructions are given in the Last Will and Testament. The designated beneficiaries will receive the financial account, even when someone else is designated in the Will, since the beneficiary designation supersedes the Last Will and Testament. For example, an individual may list one child as their designated beneficiary on their bank account, but all other children are listed as residual beneficiaries in the Last Will and Testament. The one child listed as the designated beneficiary on the account/policy would be entitled to receive said account/policy after executing claim forms with the financial institution.
If the primary named beneficiary pre-deceases the account holder, often there will be a contingent, or secondary, named beneficiary to receive the asset. If all designated beneficiaries pre-decease the account holder, then the asset will be payable to the estate (as a probate asset) by default.
What If the Beneficiary Is a Minor Child?
Florida Law attempts to protect a minor child’s inheritance until they become a legal adult at the age of 18. Any child receiving an inheritance of more than $15,000 will be required to establish a limited guardianship, in which the funds will be held in a restricted account monitored by the court until the ward reaches the age of maturity. If the inheritance allocated to the minor child is less than $15,000 then the funds can be distributed to the parent, or natural guardian/custodian, on behalf of the child.
Minors are also not allowed the execute deeds, or enter into contracts, so if a deed is required from a minor beneficiary in order to sell the decedent’s real estate, then a guardianship will also need to be established. The court appointed guardian will be authorized to execute deeds on behalf of the minor child.
A caregiver can avoid issues with guardianship through the development of an estate plan which utilizes a trust, typically a revocable trust, to hold assets on behalf of any minors. The estate plan would designate a Trustee to supervise and manage the funds on behalf of the minor child trust beneficiary.
Are Designated Beneficiaries Subject to Probate?
The Florida probate system is a court-supervised process to collect and distribute assets which are titled in the sole name of the decedent at the time of death, to the correct beneficiaries. The probate process ensures that creditors are provided with an opportunity to file a claim and potentially be reimbursed for debts of the decedent from probate assets. The probate process also allows for the intentions of the decedent, expressed in a valid Last Will and Testament to be fulfilled.
Financial assets with a designated beneficiary are not subject to probate and can be obtained outside of the legal process.
What If There Is No Designated Beneficiary?
If the primary named beneficiary pre-deceases the account holder, often there will be a contingent, or secondary, named beneficiary to receive the asset. If all designated beneficiaries pre-decease the account holder, then the asset will be payable to the estate (as a probate asset) by default. Likewise, if the account never had any designated beneficiaries, the account/policy will be paid to the estate of the decedent by default.
