Beneficiaries, Common Estate, Designated Beneficiaries, Estate Income Taxes, Estate Plan, Guardian, Heirlooms, Living Trust, Personal Property, probate, Residuary Beneficiary, Residuary Clause, Residuary Estate, Will
Although avoiding probate is preferable in common estates, there is still a need to list beneficiaries in your will. As mentioned in the article Tips to Avoid Probate in your Estate Plan, not all states allow designated beneficiaries for certain types of property; therefore, certain types of property must pass through a will to a listed beneficiary. Furthermore, there is the need to plan for your residuary estate regardless of your estate planning strategy. Nevertheless, whether your will serves as a backup will to a living trust or serves as the centerpiece in your estate plan, there are significant reasons to list beneficiaries in your will.
Reasons to List Beneficiaries in Your Will
Usually, passing property to beneficiaries through the will requires probate. However, there are reasons to risk probate and list beneficiaries in your will to make your estate plan truly sound. The following are common reasons to list beneficiaries in your will:
- Plan for your residuary estate. Your residuary estate consists of property remaining after distributing specific gifts and paying all estate obligations. Also, the residuary estate includes all specific gifts that failed or lapsed. Typically, sound estate plans will have a residuary clause in the will listing a residuary beneficiary.
- To provide a guardian for minor children. An important function of a will is to name a guardian for minor children. Although a guardian isn’t really a beneficiary, the guardian could be handling the inheritance of a minor child.
- Property that can’t have designated beneficiaries. In some states, property such as vehicles and personal accounts don’t allow ways to designate beneficiaries for the property. As a result, the property must pass through the will to listed beneficiaries.
- Transfer heirlooms and specific gifts of personal property. If you have heirlooms or personal property to give to a specific person, then list that person as a beneficiary.
Depending on how complicated your life circumstances are, there may be many more reasons to list beneficiaries in your will. However, the reasons listed above are the most common for any estate.
List Beneficiaries in Your Will Instead of None at All
The worst mistake an estate planner could make is letting property default to the estate. When property defaults to the estate, the estate becomes vulnerable to costly estate income taxes. Therefore, in addition to listing a residuary beneficiary, you must also designate beneficiaries as described in the article Tips to Minimize the Estate Income Tax. With the proper use of beneficiaries, more of your property will go to your beneficiaries than to the tax authorities.
Was this article insightful? Regardless of your estate plan strategy, do you understand why a residuary clause is necessary in your will? Share your comments or questions in the comment area below.