Selecting your beneficiaries is one of the most important parts of your estate plan. A beneficiary of your estate is the recipient of all or a portion of your estate. Beneficiaries of your estate can include family, friends, charities, or trusts.
What to consider when selecting a beneficiary
Often times, clients struggle with a few key questions when considering who to select as the beneficiaries of their estates, such as:
- Who should I list as a beneficiary/beneficiaries?
- How much should I leave each beneficiary?
- Should the bequest be stated in the will and paid outright or held in trust for my beneficiaries?
Other things to consider in terms of the beneficiaries are the laws of the state which control the distributions, the estate tax implications, if any, and the needs of a beneficiary.
Have a backup plan
You should also think of who you want as an alternate beneficiary. An alternate beneficiary should be selected in the event the primary beneficiary predeceases you. If the primary beneficiary predeceased you and you did not name an alternate beneficiary, then the bequest lapses and becomes invalid, and will either pass to the residuary beneficiaries or by intestacy as deemed by the court.
Assets passing by intestacy means that the inheritance will pass pursuant to the law. The applicable statute in New York is Estates, Powers & Trusts Law (EPTL) Section 4-1.1. This section provides that the inheritance will pass to the closest family member, e.g., spouse, children, parents.
Laws dictating beneficiaries
Individuals that require special consideration are surviving spouses and minors. In New York, a surviving spouse is protected by the law and must receive a portion of an estate. The applicable statute in New York is EPTL Section 5-1.1-A. This section provides that the surviving spouse has a personal right of election which provides that the surviving spouse shall take the greater of:
- Fifty Thousand Dollars ($50,000.00)
- One-third (1/3) of the net estate.
The same does not apply to children. There is no law requiring that an individual include their children as a beneficiary of their estate. When minor children are named as beneficiaries, they can receive their share outright or in trust. New York does not allow a minor to own property outright and requires the appointment of a Guardian of the Property to manage the property until the minor reaches the age of 18. Our office encourages clients to have all amounts paid to minors to be held in-trust until a specific age which avoids the additional time and expense of needing a Guardian of the Property.
Please feel free to contact the attorneys of the Trusts & Estates Group at Goetz Fitzpatrick LLP at 212.695.8100 ext. 289 to discuss any questions you may have regarding creating or updating your estate plan.
