Ensuring that your hard-earned money, cherished possessions, and valuable assets are distributed accordingly is a fundamental aspect of estate planning. This comprehensive guide aims to illuminate one crucial aspect of this process: the role of contingent beneficiaries.
Estate planning goes beyond financial transactions; it is a testament to the care and consideration you extend to your loved ones after your passing. By defining who will inherit your assets and under what conditions, you provide clarity and prevent potential disputes among beneficiaries.
DRAFTING A WILL– THE FIRST STEP
When creating a will in Texas, you’ll work with an estate planning attorney to designate the individuals or entities (such as a charity) who will inherit from you. These beneficiaries are essential to your will. Often, multiple beneficiaries are chosen, especially for complex estate planning tools such as trusts.
Designating Beneficiaries for Various Assets
In addition to your will, it’s vital to designate beneficiaries for other types of assets. Common assets that require beneficiary designations include:
– Insurance policies
– Retirement accounts
– Investment accounts
– Pay-on-Death (POD) accounts
Selecting beneficiaries for these accounts ensures that your loved ones receive the intended funds upon your death. For instance, a life insurance policy involves choosing a beneficiary who will receive death benefits.
UNDERSTANDING THE ROLE OF CONTINGENT BENEFICIARIES
A primary beneficiary is the first person or entity you choose to receive your assets. A contingent beneficiary, however, serves as a backup. If the primary beneficiary passes away, cannot be found, or does not want the asset, the contingent beneficiary is next in line.
For example, if you are married and have a child, you might make your spouse your primary beneficiary and your child your contingent beneficiary. This setup ensures your child receives the assets if both parents die. However, keep in mind that minors cannot receive any assets outright, so when you name a minor as a beneficiary, you are setting them up for a guardianship proceeding. You should speak to an attorney on how to avoid this issue.
How Multiple Primary Beneficiaries Works
You may choose to have multiple primary beneficiaries. In this case, you can divide your estate between several beneficiaries in your will. For example, a single parent could make both their children primary beneficiaries, dividing the estate equally.
Having multiple primary beneficiaries differs from having a primary and a contingent beneficiary. The primary beneficiary has the first opportunity to receive the assets. Only if the primary beneficiary declines the assets can the contingent beneficiary assume ownership. With multiple primary beneficiaries, the assets are divided among the individuals.
BENEFICIARIES VS. HEIRS-AT-LAW IN TEXAS
While a beneficiary is someone you choose, an heir-at-law may have the right to inherit from your estate without a will or estate plan. If you die without a will, you die “intestate.” Texas intestacy laws determine which family members are entitled to your estate if you did not select beneficiaries. Typically, this includes your spouse and children or parents and siblings.
Stipulating primary and contingency beneficiaries gives you more control. You decide who receives your assets rather than letting Texas statutes dictate the outcome. By selecting loved ones as beneficiaries, you also help protect their financial futures.
CONSULT WITH A TEXAS ESTATE PLANNING ATTORNEY
The role of contingent beneficiaries is a highly important one. Therefore, an experienced Texas estate planning attorney should assist you with designating your primary and secondary beneficiaries. Additionally, they will also help you create a comprehensive estate plan, including executing advance directives and identifying strategies to help your heirs avoid probate.
Remember that your life circumstances are likely to change. You may welcome new grandchildren or have a dispute with a beneficiary and wish to update your estate plan. For these reasons, it’s essential to revisit and update your beneficiaries periodically.
Bromlow Law, PLLC and Laura L. Bromlow, are dedicated to the practice of Elder Law and Estate Planning. Our practice focuses solely on working with clients in these and closely related legal fields. Laura L. Bromlow is a Certified Elder Law Attorney with the National Elder Law Foundation. Bromlow Law, PLLC strives to enhance communication among family members and loved ones and to keep them all out of conflict so they can stay out of court. We want to help you keep your close circle safe!
Please contact our office today at (281) 665-3807 to schedule a free consultation to discuss your legal matters. We look forward to the opportunity to work with you.