Sunday, June 14, 1998

Q     When I am designating beneficiaries on my life insurance and retirement plans or both, what is better as a secondary beneficiary, my children or my estate?

A     A common mistake in choosing beneficiaries is not coordinating the beneficiary choices with the overall estate plan. It is always best to consult the attorney who prepared your will or trusts. If you do not have a will or trust, you should.

Estate planning is one of the more complex areas of financial planning. If done incorrectly, it can be extremely costly.

Generally, without a properly constructed estate plan, it is not a good idea to list your estate as beneficiary.

Here are points to remember:

• If your children are minors, they should not be designated as beneficiaries. Instead, appoint a trustee for any minors and name the trust as beneficiary.
• The trustee would manage the trust assets for the benefit of the minors, so specific instructions should be left giving the trustee direction. When you designate adult children as beneficiaries, list each beneficiary by name and state the percentage each should receive.
• This eliminates any number of instances of confusion, which can slow the process of paying benefits.
• Life changes, such as divorce or marriage, should initiate a review of all beneficiaries for possible changes. By naming a beneficiary, insurance proceeds are not subject to probate and are not subject to the control of creditors.

If you choose your beneficiaries incorrectly -- or name your estate -- the money you planned to give to your loved ones could actually go to someone else or into the hands of creditors.
Get competent advice. The stakes are too high and the pitfalls too large to do otherwise.

Terry W. Nelson, CFP^TM MS, Hometown Financial Planning, Roseville