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Choosing to name an estate as beneficiary for a last will and testament or even for a life insurance policy or some sort of retirement account is a decision that should be made only after careful consideration. With both pros and cons associated with the action, naming the estate as beneficiary may be a great way to protect your interests and make sure the money goes where you want it to go, or it could be a choice that creates hardship for loved ones. Before making the decision, it is important to consider the type of asset involved and how current laws would impact the distribution of the proceeds from that asset.
One point to keep in mind is when naming an estate as beneficiary, those assets are likely to go through a probate process when you die. In some instances, this can be a very good thing, since it will ultimately mean that the assets will be processed in a manner that ensure your survivors are able to receive the maximum benefit from the estate. Keep in mind that probate is a process that can take some time. During that interim, loved ones will not have access to those assets, which could create difficulty in settling any of your end of life expenses. For this reason, many people choose to make sure that at least a couple of assets, such as the proceeds from a life insurance policy, carry the names of spouses, children, or other loved ones as beneficiaries, making it possible for those funds to be disbursed sooner rather than later.
With retirement programs such as individual retirement accounts (IRAs) or individual savings accounts (ISAs), there are also tax implications to consider before naming the estate as beneficiary for these types of assets. In many instances, the ability for a tax deferral is rendered null and void once the proceeds are in the hands of the estate, creating an additional tax burden that must be addressed. By contrast, this is not necessarily the case if a spouse or partner is named as the beneficiary for the IRA or ISA. Consulting an estate planner can help clarify the tax implications that currently apply and aid in deciding how to set up the beneficiary for this and other types of tax-deferred retirement accounts.
In many nations, naming the estate as beneficiary also creates a situation in which creditors can seek to collect any outstanding debts from the estate proper. This is not necessarily true when an individual is named as a beneficiary. If the idea is to make sure certain assets go to individuals and are not subject to being used to pay off debts, making sure those assets are not assigned to the estate is a very good idea.
Keep in mind that with some assets, naming the estate as the beneficiary is likely to be a very sound decision. This is often true in terms of real estate holdings and other assets that you prefer to pass on to others for long-term use. The key is to identify what you wish to have done with each of the assets, consider any current tax laws and other regulations that would impact those wishes in some manner, then decide whether naming and individual or the estate as beneficiary is more in line with the ultimate goals. By taking time to assess all relevant factors, you can make the right decision.