Money Management Newsletter: Taxes
and Estate Matters
Understanding the pros and cons
of Revocable and Irrevocable Beneficiaries
Regardless of who it is that you appoint as your beneficiary, it is vital to determine whether you wish your beneficiary designation to be revocable or irrevocable. A revocable beneficiary is one that may be changed at any time by the policy owner without the knowledge or consent of the present beneficiary.
In contrast, an irrevocable beneficiary designation ensures that the policy holder cannot change any aspect of the insurance policy without the consent of the present beneficiary. This type of designation is often beneficial in situations involving divorce settlements where the court requires that an ex-spouse be named as an irrevocable beneficiary on a policy to protect his/her financial interests should the support paying spouse pass away.
As with any important decision, it is wise to take the time to think it through clearly before making your final choice. It may also be wise for you to list a contingent (or secondary) beneficiary. A contingent beneficiary is someone who would receive the proceeds of your life insurance policy if your primary beneficiary should die before or at the same time as you. Naming a contingent beneficiary is a common practice when a policy holder names their spouse as the primary beneficiary. They will often then designate their child or children as contingent beneficiaries.
Once your beneficiary designation has been made, remember to revisit the issue frequently to review your decision and determine if it is still the best option for you. Life events such as marriages, births, deaths and divorces may play a large role in your changing family structure and may create the need to change your beneficiary designation.
It is never easy to envision a time when you may not be here to enjoy life with your loved ones. However, giving some care and consideration to matters such as designating a beneficiary and completing a Will, will go a long way to providing you and them with a large measure of security for the future.
As we see designating beneficiaries have great advantages and a few pitfalls - far too many to review within this medium. However, your best advised to seek professional counsel from a qualified advisor.
Below we list a few points that may help you understand some of the caveats:
On a final note, probate may be inevitable is some circumstances and estate planning is something that may you need to consider.
A consequence of bad planning or management, is that monies that flow to beneficiaries outside of the control of the estate may force the estate to be underfunded for its objectives under the Will, as well as being responsible for any tax liabilities on funds passed directly to the beneficiaries. - You have to remember the tax department wants its pound of flesh, prior to any wishes you may have for your children,grandchildren or a favorite charity.
* * *
Have a question regarding this article? Use our feedback form to send us a note.
© , Fiscal Agents Money Management Newsletter