When working with an estate planning lawyer in Friendswood, Texas, one of the most important decisions you’ll make is choosing your beneficiaries. At Hannah Law, PC, we help clients understand the key roles beneficiaries play in estate planning and how to avoid common mistakes that could create confusion or conflict later on.
Whether you’re drafting a will, setting up a trust, or designating life insurance and retirement accounts, selecting the right beneficiaries is essential.
What Is a Beneficiary?
A beneficiary is a person or entity you name to receive your assets after your death. Beneficiaries can inherit money, property, personal belongings, insurance benefits, and more. Essentially, they are the people or organizations who benefit from your estate plan.
In Texas, beneficiaries are commonly named in legal documents such as wills, trusts, life insurance policies, retirement accounts, and payable-on-death (POD) or transfer-on-death (TOD) accounts. These designations help ensure your assets are distributed according to your wishes without unnecessary delays or court involvement.
Who or What Can Be a Beneficiary in Texas?
In Texas, you can name a wide variety of individuals or organizations as your beneficiaries. These include:
- Family members (spouse, children, grandchildren, siblings, etc.)
- Friends
- Charities or nonprofit organizations
- Trusts
- Businesses
You can name more than one beneficiary, and you can assign specific percentages or dollar amounts to each. You also have the option to name backup beneficiaries in case your primary choice is unable to receive the inheritance.
Types of Beneficiaries
There are two main types of beneficiaries in estate planning: designated beneficiaries and contingent beneficiaries.
Designated Beneficiaries
Designated beneficiaries are your primary beneficiaries, the people or entities first in line to receive the assets. For example, you might name your spouse as the designated beneficiary of your life insurance policy.
Contingent Beneficiaries
Contingent beneficiaries are your backup choices. If a designated beneficiary dies before you or is otherwise unable to accept the inheritance, the contingent beneficiary will step in. It’s essential to name contingent beneficiaries to ensure your assets don’t end up in probate.
Can You Change Beneficiaries?
Yes, in most cases, you can change your beneficiaries at any time. Life changes such as marriage, divorce, the birth of children, or the death of a beneficiary often require updates to your estate plan.
Some accounts, like life insurance or retirement plans, may require you to fill out a new beneficiary designation form to make changes. For wills and trusts, updates may require a legal amendment or a new document altogether. An estate planning lawyer can help ensure these updates are legally valid and properly executed.
What Estate Planning Documents Need Beneficiaries Listed?
Several estate planning documents in Texas should list beneficiaries. Proper beneficiary designations are crucial, as they determine who receives your assets upon your death and can help those assets bypass probate.
Retirement Accounts
401(k)s, IRAs, and pensions require you to name primary and often contingent beneficiaries. These designations allow the assets to transfer directly to the named individuals or entities upon your death, avoiding probate.
Life Insurance Policies
Life insurance contracts require you to list beneficiaries who will receive the death benefit directly, outside of the probate process.
Bank and Financial Assets
Many bank and brokerage accounts in Texas can be set up as “Payable on Death” (POD) or “Transfer on Death” (TOD) accounts, allowing you to name beneficiaries who inherit the funds directly.
Trusts
Trust documents must list beneficiaries who will receive the trust assets according to the terms you set. Both revocable and irrevocable trusts require clear beneficiary designations.
Making sure each of these documents has the correct beneficiary listed helps avoid confusion and delays after your passing.
What Are Probate vs Non-Probate Assets?
Assets with beneficiary designations (like retirement accounts and life insurance) are considered non-probate and pass directly to the beneficiary, regardless of what your will says. If you do not name a beneficiary, these assets may become part of your estate and be distributed according to your will, which usually means they must go through probate.
Factors to Consider When Choosing a Beneficiary in Texas
Naming a beneficiary isn’t just about who you want to receive your assets. There are several practical and legal factors to consider:
- Age: Minors (under 18 in Texas) cannot legally inherit directly. If you want to name a child, consider setting up a trust or appointing a guardian to manage the assets until they reach adulthood.
- Financial Dependents: It’s wise to start with your financial dependents when designating beneficiaries. This can include your spouse, children, and other family members who rely on you for financial support.
- Policy or Account Rules: Some retirement plans or insurance policies have restrictions on who can be named. Always check the fine print.
Common Challenges with Beneficiary Designations in Texas
Naming beneficiaries might seem straightforward, but a few common pitfalls can lead to big problems. Here are some mistakes we often see at Hannah Law, PC:
Fixed Dollar Amounts
Naming a fixed dollar amount instead of a percentage can create complications if your estate’s value changes. For example, if you leave $50,000 to one beneficiary and your estate only has $40,000, they won’t receive the full amount.
To avoid this, leave a percentage value to the beneficiaries.
No Contingent Beneficiary
If your primary beneficiary dies before you and you haven’t named a contingent beneficiary, the asset may go through probate—the very process most estate planning tries to avoid.
Incorrect or Incomplete Legal Names
Using nicknames or partial names can lead to confusion or disputes. Always use full legal names and, if possible, include additional identifying information such as a date of birth.
Naming “All My Children”
While this may seem inclusive, it can create ambiguity. For instance, if a child beneficiary dies before you, it’s important to specify what happens to their share of assets. Should this portion go to the child’s offspring or be divided among the surviving children?
Forgetting to Update After Life Changes
If you get divorced, remarry, or have additional children, your old beneficiary designations may no longer reflect your wishes. Regularly review and update your documents.
How an Estate Planning Lawyer Can Help
Choosing and updating beneficiaries isn’t something you want to do without professional guidance. At Hannah Law, PC, we offer personalized estate planning services tailored to your family, your goals, and Texas law. We ensure that your beneficiary designations are not only legally valid but strategically planned to minimize taxes, avoid probate, and protect your loved ones.
From creating a clear and effective will to establishing trusts that safeguard your assets, we are here to guide you every step of the way. If you’re in Friendswood, Texas, or the surrounding area, let us help you build a plan that brings peace of mind.
Contact Hannah Law Today
If you have questions about beneficiaries or need to review your estate plan, don’t wait. Contact our law firm today to schedule a consultation with an experienced estate planning lawyer. We’re committed to helping you make informed decisions that protect your legacy and your loved ones.
