How to Name Beneficiaries to Your Estate: Step-By-Step

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Naming beneficiaries to your estate may seem simple — just name your spouse or your children, right? Well, for some people, it’s that easy. But family relationships can be complex — they often involve multiple marriages, mixed families, children with special needs, disgruntled relatives, and more. 

Jump ahead to these sections:

Life is complicated, but that doesn’t mean naming beneficiaries to your estate has to be.

We’ll tackle the common ways you can pass on property to your loved ones and how to name beneficiaries to your estate in a thoughtful and meaningful way. Just follow these three easy steps!

Step 1: Decide What Property You Want to Pass On

Before you decide who to name as a beneficiary to your estate (your estate is all the property you own), you must decide what property you want to pass on. Generally, all of the property in your estate falls into one of two categories:

  • Real property includes real estate or land.
  • Personal property involves everything else, including tangible things like cars, cash, and jewelry — just about everything you own that isn’t real property.

Whether your property includes a pension fund, life insurance policy, a home, or a small heirloom, you can easily name a beneficiary to receive those items. 

» MORE: Turn your pet or loved one's ashes into beautiful cremation stones you can share with the family.

 

Step 2:  Decide the Best Way to Pass On Your Property

Now that you know what property you want to pass on, decide the best way to do it among five options. You can choose one or all of these options for any or all of your property.

Each option has its benefits and drawbacks. Before you opt for one over the other, understand what each one does and why you might choose it. It all depends on what you want to accomplish when you pass on your property.

Option one: a completed inter vivos transfer

That sounds complicated, right? It’s actually the simplest and most straightforward way to pass on property from your estate to a named beneficiary. In fact, you may not realize it, but you’ve been using inter vivos transfers to pass on property from your estate for most of your life! “Inter vivos” simply means “during life.” You use it every time you transfer property to someone else.

Any gift you give — a book for a best friend’s birthday, flowers for your sister’s anniversary or cash for your niece’s graduation — is an inter vivos gift. Once you give the gift, it becomes the personal property of the beneficiary to whom you gave the gift, and you lose any and all rights to that property.

Choose the “completed inter vivos transfer” method by simply choosing a beneficiary and give the property as a gift during your lifetime if you want a simple and effective way to pass on your property to someone else during life. 

Option two: intestate succession

“Intestate” is just a fancy way of saying that you died without having a last will and testament — also known as a will. The opposite is “testate,” which means you die with a valid will and your property will be distributed according to your will. 

Most people will want to avoid intestate succession simply because it can be expensive and difficult to predict. Depending on who you choose to name as a beneficiary to your estate, using the laws of intestacy to pass on property may be an appropriate option. Here’s why.

Every state’s law of intestate succession is based on a presumption of how the average person likely would have distributed his or her property if he or she had died with a will. Most states assume that people would want their property to go to their heirs — those related to you by blood, marriage (a spouse), or adoption.

The state prioritizes your heirs by class according to how closely they are related to you. Almost all states prioritize classes of heirs in the following order:

  • Spouse
  • Children
  • Parents
  • Collateral heirs (siblings, grandparents, aunts and uncles, cousins, etc.)

Note that the state will only look so far. At a certain point, your heirs become so distant from you that they are likely to rejoice in the fact that someone they don’t even know died and left them property. These distant relatives are called “laughing heirs.”

The state presumes that you would not want your property to go to your laughing heirs. Rather, the state limits its intestate distribution of your property to a certain level of blood relationship (this could be different in every state) and presumes that, at this point, you would rather give your property to the state. 

You must choose another option if you’re confident that a court will distribute your property to someone other than the person you want to receive it.

Option three: last will and testament

A last will and testament is an accepted or “legal” way to tell the court (and the world) how you want your property to be distributed. You do this by naming beneficiaries to your estate in your will. You execute your will while you’re alive but a will is not effective inter vivos (during life). A will is considered “testamentary,” which means it only becomes effective when you die. 

Like intestate succession, it requires the involvement (and the time and expense) of the probate court. You can avoid the probate process by choosing from Options 1, 4, and 5. If you do not choose Options 1, 4 or 5, a will is usually a better option than intestate succession for purposes of naming beneficiaries to your estate. Absent other alternatives, you should always have a valid will. 

Here are the most common kinds of wills you can have in most states.

Form will

A form will is a document that you can purchase from various online legal form services. The substance of the will is already typed out and you simply fill in the blanks for the material parts of the will, where you identify the property you want to include, your beneficiaries, and any witnesses that are necessary.

Form wills may be legally sufficient in your state, but they are best used for small and simple estates. Always obtain legal advice from a lawyer or estate attorney before executing any kind of will for larger or more complex estates.

Nuncupative will

A nuncupative will is just a funny way of describing an “oral will,” or a will that’s not written. Not every state recognizes nuncupative wills.

For those that do, they typically are used when the testator (the person creating the will) is physically unable to create a will and, with family at the bedside, expresses his or her wishes for the distribution of property upon death.

Such circumstances could serve as a valid nuncupative will if the testator has current mental capacity and express clear intent, and if the witnesses reduce the testator’s statement to writing within a reasonable amount of time.

Holographic will

A holographic will is a document that, in most states, is required to be entirely in the handwriting of the testator. Some states validate holographic wills even if at least the material portions of the will are in the testator’s handwriting.

A holographic will does not require any witnesses but it does require witnesses to attest to the handwriting of the testator. It’s common that a testator does not write the document specifically as a will but, rather, as some other instrument, such as personal letter.

As long as the instrument is signed, dated, and expresses intent for the distribution of property at death, a court may probate as a valid holographic will any handwritten instrument.

Witnessed will

A witnessed will is typically what most people think of when they think of a will. As its name implies, witnesses are required. State rules differ. Many states require that the testator and the witnesses all sign the instrument in each other’s presence. Other states may allow each witness to sign at different times. There are many variations to the rules. 

For example, some states allow:

  • Acknowledgment: When the testator acknowledges his or her signature that he or she already signed.
  • Proxy signature: When someone else signs the testator’s name at the request and direction of the testator.
  • Assisted signature: When someone else helps the testator sign his or her name.
  • Signatures not at the foot (the end) of the document: When there is something written after the signatures relevant to the will but is not testamentary.     

As you can see, there are so many rules. There are far too many rules relevant to executing, amending, and revoking (or terminating) a will to cover here in full. Every states’ rules for wills are different but every state generally requires only four things to have a valid will. It must be:

  • Written (unless it is a nuncupative will) 
  • Dated
  • Signed
  • Testamentary, or include “death talk” by expressing intent for the disposition of property upon death  

Provided these four elements are present — even if written in a love letter, on a napkin, or as a school assignment! — if you intend for the instrument to express your testamentary intent for the disposition of your property upon death, you’ve executed a will and have named beneficiaries to your estate.    

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Option four: will substitutes — non-probate or payable-on-death (POD) transfers)

Another option most people use (sometimes without even realizing it) as a way of naming a beneficiary to receive property from an estate upon death is the will substitute, which many refer to as a “non-probate” or “payable-on-death” (POD) transfer. 

As the names suggest, these are instruments or accounts that do not satisfy the requirements of a will (rather they “substitute” for a will), are not subject to probate proceedings (because they are not included as part of your probate estate) and are executed during life but are payable upon death (POD). Typically, these include:

  • Life insurance policies
  • Pension savings
  • Jointly-titled accounts (joint bank accounts)
  • Trusts (Trusts are a special kind of non-probate transfer and are discussed separately below as Option 5.)

These instruments typically include provisions by which the interest-holder names a beneficiary to receive the proceeds of the account upon the interest holder’s death, such as when you open a joint bank account with a spouse. If your spouse dies, you do not have to file anything in probate court (or do anything) to exercise your right to the property in the account. It simply becomes yours because you held it jointly.

Likewise, for interests in life insurance proceeds or pension proceeds, the interest holder names a beneficiary to receive the property when the interest holder dies. When that happens, the administrator of the accounts pays the proceeds to the named beneficiary. Note that federal law may require certain federal benefit plans to be paid to a specific beneficiary, such as a spouse. 

Always name a secondary or “contingent” beneficiary, who will receive any POD benefits if the originally-named or primary beneficiary predeceases (or dies before) the account-holder.         

Option five: trusts 

Trusts are a special type of non-probate instrument in which you can name one or more beneficiaries to your estate. As with wills, there are far too many rules and specialized types of trusts to cover in full detail in this article. Always obtain legal counsel from a trust attorney before executing any kind of trust. 

Trusts are valuable estate planning tools because, if structured properly, they can allow you to:

  • Pass on property to loved ones
  • Avoid probate
  • Retain possession and control over your property
  • Incur tax savings
  • Protect property from creditors or spendthrift beneficiaries
  • Provide regular income to named beneficiaries
  • Be philanthropic and charitable
  • Instill personal values

A trust seems like a no-brainer, right? Well, often it is. One of the primary benefits of certain kinds of trusts is that they allow the person creating the trust (called a “grantor” or “settlor”) to avoid probate by removing the trust property (called a “res” or “corpus”) from the grantor’s probate estate.

However, because of the structure of certain trusts, a grantor could completely surrender all control over the property in the trust and be unable to revoke the trust or take it back. So, if you’re considering a trust with your attorney, you’ll want to discuss the structure of different types of trusts. These may include:

  • Revocable trusts: You are always free to terminate the trust.
  • Irrevocable trusts: You may not revoke the trust.
  • Inter vivos trusts: These are effective and operate during the grantor’s life.
  • Testamentary trusts: The trust only becomes effective upon the death of the grantor.
  • Pour-over trusts: The grantor uses his or her will to name the beneficiary of the trust (it “pours over” to the will).

You can find almost an endless number of different types of trusts. Your attorney will help you discover the type of trust that accomplishes your estate planning goals. Regardless of the type of trust or its purpose, the trust is the most effective way to name a beneficiary to your estate and still exercise some influence over when your named beneficiary receives the property and how he or she uses it.   

Step 3: Name Your Beneficiary

Now that you know what property you want to pass on and know your options, the final step is to name your beneficiary or beneficiaries. You are free to name almost any beneficiary you wish. Here are some things to consider:

  • You may name as a beneficiary:
    • Yourself
    • A spouse
    • Children
    • Other family members
    • Friends
    • Charities 
    • Wills (with a pour-over trust)
    • Trusts (with a pour-over will)
    • Pets (with a “pet trust” or “honorary trust”)
  • Name a beneficiary who will appreciate and not squander your estate.
  • You can delay or prohibit distribution of a benefit if you are concerned that a beneficiary:
    • Will squander your estate
    • Uses drugs 
    • Is abusive to you 
    • Is immature
    • Will be wasteful
  • You can incentivize the beneficiary to do a certain behavior, like:
    • Attend school
    • Save money
    • Give up smoking
    • Take care of your pet
    • Restrict spousal choices (restriction must be reasonable and may not prohibit marriage or the practice of someone’s religion)

Name a Beneficiary to Your Estate

As the saying goes, “You can’t take it with you when you die!” That certainly is true. But what you can do is pass it along to your loved ones by naming beneficiaries to your estate. 

Naming a beneficiary to your estate benefits the beneficiary with your property, according to your wishes, under your terms. 

Disclaimer: The information posted on this site is provided solely for informational and educational purposes and is not legal advice or tax advice. Contact an appropriate professional licensed in your jurisdiction for advice specific to your legal or tax situation.

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