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Do You Have a Beneficiary Backup Plan?

Posted August 2021

Have you taken advantage of your right to execute a valid will that describes your choices for the disposition of your probate assets? If so, congratulations for being one of the minority of Americans who have done so. If you have not, your first order of business should be to do so as soon as possible. A second important task is to make sure you have a beneficiary backup plan.

Why you need a will
There are several important reasons to have a will, but for many the primary motivation is to ensure that your probate assets will pass to your intended beneficiaries. State laws typically set out a plan for distribution of a decedent’s assets to relatives when a person dies without a will. Your state’s plan may not reflect the plan you would choose, which should motivate you to draft a will that reflects your personal desires.

Similarly, state plans do not make any provisions at all for distribution of any of your probate assets to an entity or person who is not a relative, including charities. If you want to make provisions for special friends or to support our work, for instance, you need to make a will to do so.

Why you need a beneficiary backup plan
Even if you already have a will, you may need to ask yourself an additional crucial question: “What will happen if I outlive my named beneficiaries?” The exact answer depends on specific state law, but often those assets will pass to the deceased beneficiaries’ estates or to their heirs—and that may not be in keeping with your wishes.

For example, you may be fine with your assets passing to the estates or heirs of your immediate family members if they predecease you—but you may think differently if one of your beneficiaries is a friend or a more distant relative.

The key to ensuring that your wishes will prevail is to provide specific language in your will setting out what those wishes are. Some of our friends have decided to name our organization a contingent beneficiary if they are not survived by some of their named beneficiaries. For example, you may prefer that a provision to a special friend or a distant relative be redirected to our organization if that person does not survive you.

Similarly, many are finding it useful to have a general contingent beneficiary clause to provide for what happens in case they are not survived by any of their intended beneficiaries. It may be of some comfort to know that you can redirect those bequests to support a cause that reflects your values.

Keep in mind that you can and should make beneficiary designations for other types of assets—such as retirement-fund balances, life insurance death benefits, and bank or investment accounts. Most of those give you the option to name contingent beneficiaries if you outlive your primary beneficiary.

We welcome the opportunity to discuss issues concerning your beneficiary planning with you and with your advisors.

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