Your estate plan in Illinois can include several documents, many of which may require beneficiaries, like any trusts you may have set up or intend to set up and non-probate assets like 401(k), IRA accounts, life insurance policies, and pensions. Assets from these accounts will go to the beneficiaries upon your death. It is important, therefore, to make sure you choose your beneficiaries carefully. 

You may think it's a simple thing to do: choose those closest to you whom you want to benefit from your estate and your life's work. Sometimes, however, it is not as easy as that. There are many different factors to consider and different types of beneficiaries to identify. Douglas Boodt Attorney at Law, is an estate planning attorney based in Chicago.  He handles all types of estate plans in Cook, DuPage and Will Counties and can explain the importance of beneficiary designations so that you are confident in your choices. Contact him today by email at [email protected] or telephone at 269.929.7206 to schedule a free 15-minute telephone consultation and to make sure your estate plan includes the beneficiaries you want to protect if anything should happen to you.

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. 

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 Illinois

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.

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 Illinois 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.

Contact an Estate Planning Lawyer in Chicago Today 

You have worked hard and have planned well and want to make sure your loved ones are secure in the event something happens to you. Attorney Douglas Boodt helps families in Cook, DuPage and Will Counties create comprehensive, inclusive estate plans that address all possible situations and challenges. He will make every effort to help you and your beneficiaries get what you intend to achieve through your estate planning. Contact him either by filling out the online form, by email at [email protected] or calling him at 269.929.7206 to schedule a free 15-minute telephone consultation.