1) Bank accounts, including checking, savings, etc.. – ask your bank to complete a “Payable on Death” form. They will ask for your beneficiaries’ names, addresses, phone numbers, birthdates, and social security numbers. You will need to decide what percentage you would like each beneficiary to receive of that account. This must be done for each account. The reason that it is called “Payable on Death” is because once you pass away (any joint owner must also pass away) and the bank receives your death certificate, the bank will pay out the percentage you left to each beneficiary. Remember to get a copy of this form once it has been completed and filed with the bank.
2) Stocks and brokerage accounts – you will need to complete a “Transfer on Death” form for each account. It is the same information and principle as the “payable on death” but the account will transfer shares of stock to your beneficiary rather than cash-out the account. By doing this your beneficiaries may avoid capital gains tax and receive a “step-up” value. Your beneficiaries might still need to pay income tax depending on when they sell the stocks. Remember to get a copy of this form once it has been completed and filed with the company.
3) IRS’s, life insurance, and annuities – you will need to complete a "beneficiary forms". You should always list primary beneficiaries and contingent beneficiary. Some forms designate who the next beneficiary is after the primary beneficiary. Example: If you have 3 beneficiaries and one of them pass away (and you never changed the beneficiary form). The deceased beneficiary’s share could go to the other 2 primary beneficiaries OR it could go to the contingent beneficiaries you listed OR it could go “Per Stirpes”.
What is “Per Stirpes”? When a beneficiary passes away their share would go to their heirs (children). It means it follows the bloodline. It does not mean it will go to that person’s spouse.
Do I need to list a beneficiary if I own it jointly? Yes! If both of you pass away at once (car accident) that asset would go to probate, if you do not.
If the beneficiary is listed as “To the Estate of” and your name, it means that asset will need to go to probate court to be distributed either according to your Will or according to the state’s statute.
Avoiding probate might be great way of distributing your assets because you avoid some taxes, courts costs, lawyer fees, time delays, and stress for your family. However, there are some downsides to having direct beneficiaries. If you want to leave a minor beneficiary money, then a trust might need to be created and a trustee to monitor that trust. What if you didn’t like the trustee? What if you don’t want the minor to get the assets when they are 18 or 21? The minor child might not qualify for financial aid or receive less financial aid for college. If you leave someone who is disabled assets, they might be taken off of their government benefits. If you leave someone on Medicaid money or assets, they might lose their benefits. What if the person has financial problems, going through a divorce, or worse a drug problem, leaving them financial assets would probably not be a good option.
Before making anyone a direct beneficiary you should do some investigating and determine that making them a direct beneficiary will not hurt their current or future situations.
One last thing you should take care of is any account that you are listed as a custodian for that account. You should list a successor custodian. If you do not list a successor custodian, this account could end up in probate court, if the person is still a minor.