WHAT HAPPENS WHEN THERE ARE NO BENEFICIARIES
Where do those accounts and policies end up?
Provided by Kenneth Hagel
Some accounts have no designated beneficiary. Rarely, the same thing occurs with insurance policies. This is usually an oversight. In exceptional circumstances, it is a choice. What happens to these accounts and policies when the original owner dies?
The investment or insurance firm gets the first chance to determine what happens. For example, a spouse is often the default beneficiary on many retirement plans, even if not named on a beneficiary form. If the deceased has no spouse, the plan assets may become part of that person’s estate. Brokerage accounts without designated beneficiaries are also poised to become part of the decedent’s estate. The next stop for these assets could be a probate.
The state may decide where the assets go when beneficiary forms are blank. If the deceased failed to name account or policy beneficiaries but had a valid will or other valid estate documents, this will influence the path from here – but it may not exempt the assets from the probate court.
If no legally valid estate documents exist, the deceased party dies intestate, and the state determines the destiny of the assets. Most states follow the same ladder of potential inheritors – surviving spouses at the top, kids, grandkids, parents, grandparents, siblings, nephews, or nieces. If no legitimate heir can be found, the assets become the property of the deceased’s state of residence.
What about life insurance policies? A life insurance policy usually has at least two levels of designated beneficiaries. It is rare when a policyholder outlives them and even rarer when a policy has none. In such a circumstance, the life insurance policy proceeds become part of the policyholder’s estate upon the policyholder’s death.
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. It would help to consider whether you are insurable before implementing a life insurance strategy. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
What if a person lacks possible heirs or sees no worthy heirs? Occasionally, this happens. Some people remain single for life, and others are estranged from relatives or heirs who would otherwise be beneficiaries.
A person in this situation has a choice: charity. Perhaps a charitable or non-profit organization deserves the assets. Perhaps a college or university would be a worthwhile destination for them. Choices exist, and single people can explore them as they consider their estate.
Kenneth Hagel may be reached at 509-735-9000or email@example.com
This material was prepared by MarketingPro, Inc. and did not necessarily represent the views of the presenting party or their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice. It may not be relied on to avoid any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment, insurance product or service and should not be relied upon. All indices are unmanaged and are not illustrative of any particular investment.
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1. Kiplinger, June 6, 2022
2. Schwab.com, September 24, 2021
3. SmartAsset, April 28, 2022