Protecting Your Assets: The Importance of Naming Beneficiaries

As we age, it’s natural to start thinking about how best to manage and transfer our assets to loved ones. Whether it’s your home, bank accounts, or other investments, ensuring that these assets are handled according to your wishes is an essential part of estate planning. Unfortunately, one common mistake can jeopardize your financial security and create unintended complications: adding someone else as an owner of your assets.

Many older adults add a family member or friend as a co-owner of their assets, thinking it will make the transfer process smoother or provide immediate access in case of emergencies. While the intention is good, the reality is that this decision often creates significant risks. Let’s explore why this approach can be harmful and what you can do instead.

The Risks of Co-Ownership

1. Loss of Control: Once someone is listed as a co-owner, they have equal rights to the asset. This means they could withdraw money from your account, sell property, or make other decisions without your consent. Even if you trust the person completely, unforeseen circumstances could still arise.
2. Exposure to Liens and Bankruptcy: If the co-owner has financial troubles, such as unpaid debts, lawsuits, or bankruptcy, your shared assets could be at risk. Creditors can place liens on co-owned property, potentially forcing its sale to satisfy the co-owner’s obligations.
3. Complications in Relationships: Adding one family member as a co-owner can unintentionally create tension or disputes with other relatives. This decision may be viewed as favoritism or lead to disagreements about how the asset should be managed or distributed.
4. Tax Consequences: Transferring ownership can trigger unintended tax implications, including gift taxes or capital gains taxes. These costs can be significant and reduce the value of your assets.

A Better Solution: Naming Beneficiaries

A safer and more effective way to ensure your assets are distributed according to your wishes is to name beneficiaries. Here’s how this approach works:

1. Direct Beneficiary Designations: Many financial accounts, such as savings accounts, retirement accounts, and life insurance policies, allow you to name a beneficiary. Upon your passing, these assets transfer directly to the named individuals without going through probate. This ensures a smooth, quick, and private transfer.
2. Payable-on-Death (POD) and Transfer-on-Death (TOD) Designations: For bank accounts and investment accounts, you can add a POD or TOD designation. This allows the account to automatically transfer to your chosen beneficiary upon your death without granting them access or ownership during your lifetime.
3. Updating Estate Plans: Work with an estate planning attorney to ensure your will, trusts, and other documents reflect your intentions. Regularly review these documents and your beneficiary designations to ensure they align with your current wishes and family circumstances.

Protecting Yourself and Your Legacy

By keeping ownership of your assets in your name and using beneficiary designations, you maintain full control during your lifetime. This approach minimizes risks, avoids unnecessary complications, and ensures your assets are passed on according to your wishes. Most importantly, it safeguards your financial security, giving you peace of mind as you plan for the future.

If you’re unsure how to set up beneficiaries or want to review your estate plan, consult with a qualified attorney or financial advisor. Proper planning today will save your loved ones from potential headaches tomorrow.

Remember: Your assets represent a lifetime of hard work. Protect them wisely by making informed decisions that honor your intentions and secure your legacy.

Todd Miller is a monthly contributor and regularly writes and speaks on various legal topics including estate planning, probate, and elder law. He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Suite A, Jefferson City, Missouri in 2006. He was recognized as 2016 Adviser of the Year by GolfInc; and Golf Tax Consultant of the Year by Boardroom Magazine three times; and one of the “10 Best” attorneys by the American Institute of Family Law Attorneys; and one of the “10 Best” attorneys by the American Institute of Criminal Law Attorneys. Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991. You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, LinkedIn, and Twitter.