Beneficiary Designations

A beneficiary designation involves naming the person who will directly receive an asset in the event of the death of its owner. Assets that allow for beneficiary designations include insurance policies, retirement accounts such as 401(k) plans, annuities, and other financial accounts. Trusts also require beneficiary designations. You can also choose beneficiaries in your Last Will and Testament. 

To note, beneficiaries are slightly different from heirs. Beneficiaries are chosen while heirs (though they can be chosen) are those who inherit the property of a person who dies intestate, or without a will.

The designation process ensures the named beneficiary directly receives the asset, rather than it passing to the estate and going through probate, which can cost significant time and money. 

Common Types of Beneficiaries in Florida

Common categories of beneficiaries include eligible designated beneficiaries, designated beneficiaries, not designated beneficiaries, and contingent beneficiaries. Different eligibility rules may apply to different types of beneficiaries. 

Eligible Designated Beneficiaries

Eligible designated beneficiaries include:

• Spouses
• Children under 18 years of age
• Individuals with a disability
• Chronically ill individuals
• Individuals within 10 years of age of the deceased

Eligible designated beneficiaries have additional rights to designated beneficiaries. 

Designated Beneficiaries

A designated beneficiary is any living person who does not fall into the above categories. This may include a friend or extended family members, such as elderly parents or a sibling. 

Not Designated Beneficiaries

A not designated beneficiary is a non-living beneficiary, such as a charity, trust, or estate. 

Contingent Beneficiaries

A contingent beneficiary is a “backup” beneficiary who receives the asset in the event the primary beneficiary is unable to. 

What Documents in an Estate Plan Need Beneficiaries Listed?

Most non-probate assets and documents require at least one beneficiary to be listed. This includes:

• 401(k) accounts
• Pensions
• Life insurance policies
• Revocable trusts
• Irrevocable trusts

Typically, non-probate assets are not placed in a Will because a Will goes through probate. Beneficiaries will override anything else, too, like other heirs in a Will.

Factors to Consider When Choosing a Beneficiary in Florida

When choosing a beneficiary, here are some points to keep in mind.

Age

A beneficiary typically must be over 18 years of age. If you want to gift an asset to a minor upon your death, you may need to set up a trust and designate the trust as the beneficiary. 

Financial Support

Your financial dependents are a good starting point when considering who to designate as a beneficiary. This may include your spouse, children, or other extended family members.

Insurable Interest

A beneficiary generally must have an insurable interest in the insured person. This means there must be a legitimate financial interest between the two, such as in the case of dependent children or a spouse. 

Policy Specific Rules

Some life insurance policies or pension funds set rules for designating a beneficiary. Make sure you are aware of these before making your decision and seek legal and financial advice about your options. 

Revocability vs. Irrevocability

Depending on the document and the terms of the contract, some beneficiaries may be irrevocable. This means you cannot revoke their rights unless they agree to it. At first glance, you may wonder why you would want to designate beneficiaries as irrevocable, but there are benefits. An estate planning attorney can illuminate the reasons and situations where irrevocable beneficiary designations may be most appropriate (or not).

Challenges that can Arise in Florida with Beneficiary Designations

The best way to avoid most potential issues when it comes to beneficiary designation is to speak with a lawyer to ensure your designation is valid. 

Here are some common challenges that may arise when designating a beneficiary. 

Fixed Dollar Amounts

When designating a beneficiary, it is possible to set either a fixed dollar amount or percentage they will receive. However, a fixed dollar amount can cause issues if the value of the asset is insufficient (or if it increases in value, leaving a portion of the asset to probate). To avoid this, assign a percentage value instead. 

No Contingent Beneficiary

Failing to name a contingent beneficiary may result in your asset going through probate. To avoid this, identify a contingent beneficiary who will receive the asset in the event the primary beneficiary cannot accept it––for example, where they have passed away. 

Naming the Wrong Beneficiary

The identity of a named beneficiary may not be clear––for example, if several people in the family share the same or similar name. Names may also change as a result of marriage or divorce. Always confirm the correct legal name of your intended designated beneficiary and ensure you update the document to reflect any name changes. 

“All My Children”

Designating “all my children” can create challenges. For example, if a child beneficiary dies before their parent, it may be unclear as to how their portion should be distributed. It may be divided between the surviving children, or instead, pass to their offspring. To avoid this issue, be specific when naming a beneficiary.