DESIGNATING BENEFICIARIES THROUGH CONTRACTUAL ARRANGEMENTS

There are three methods people can transfer their property to beneficiaries when they pass away. The three methods are: contractual arrangements, written wills or Montana intestate succession statutes (laws for those who did not have a written will). For this article, we will look at contractual arrangements.

Contractual arrangements that specifically provide for the passing of property to a beneficiary are considered as transfers taking effect at death. Some examples of assets which provide the naming of beneficiaries through contractual arrangements are: life insurance and annuity policies; payable on death (POD) designations for checking and savings accounts, certificates of deposit, US savings bonds; transfer on death (TOD) designations for stock, bond and mutual fund accounts; and beneficiary deeds for real property in Montana. Designating beneficiaries is usually done when one of these is opened or initiated.

What is the advantage of designating beneficiaries through contractual arrangements? Probate, which is the legal procedure that generally takes place to settle a deceased person’s estate, is not required for assets controlled by contractual arrangements. Keep in mind, however, assets that pass to beneficiaries through contractual arrangements are still subject to federal estate taxes as well as creditors’ claims against the decedent’s estate. Assets valued at less than $11.2 million will have no federal estate tax on a decedent’s assets in 2018.

Do you remember who you designated as your beneficiaries? Be sure your beneficiaries through contractual arrangements are up to date especially if you have gotten married, divorced, had family members pass away, name changes of beneficiaries, etc. This is important because contractual arrangements take precedence over a person’s will. It is also similar for joint tenancy with right of survivorship on real and personal property. If joint tenant passes, the surviving joint tenant(s) receive all. To change beneficiary designation, you will need to request it through each financial entity. They typically will have beneficiary designation change forms that need to be signed, dated and returned to the financial entity in order for the change to be effective. Most forms will indicate the change revokes any beneficiary designations made previously under that contract.

There are many forms of beneficiary designations. Some of these include: one beneficiary, two beneficiaries equal division, two beneficiaries unequal division, primary and contingent beneficiaries, charitable beneficiaries, trusts, etc. In addition, you can choose the wording of your beneficiary designations for most contractual arrangements, usually in the event where tax planning advice has been obtained from a certified public accountant, certified financial planner and/or an attorney.

This information is a summary of the more in depth Designating Beneficiaries through Contractual Arrangements MontGuide available at http://msuextension.org/publications/FamilyFinancialManagement/MT199901HR.pdf.

Additional information is available by contacting Janell at the Chouteau County Extension Office at 622-3036, janellb@montana.edu or at 1308 Franklin St in Fort Benton (green building next to the courthouse).