When it comes to estate planning and deciding who will inherit your assets, you generally have flexibility in choosing your beneficiaries. While a spouse is often the default beneficiary, you can name other individuals as long as you follow your state’s laws and the terms of any beneficiary designations.
Can I name someone other than my spouse as beneficiary?
Yes, you can name someone other than your spouse as a beneficiary on financial accounts and insurance policies. You can also leave assets to other individuals in your will. Some common scenarios include:
- Naming your children or other family members as beneficiaries
- Leaving assets to friends or charities
- Naming a trust as beneficiary
When assets have a designated beneficiary, like a life insurance policy or retirement account, the person you name will receive the funds directly upon your death. Assets that pass through your will follow the instructions in your will and are distributed by your executor.
Are there any restrictions on naming non-spouse beneficiaries?
There are some restrictions to be aware of if you want to name someone other than your spouse as beneficiary:
- If you are married, your spouse may have certain inheritance rights that allow them to claim a portion of your estate, regardless of your will or beneficiary choices.
- There are special beneficiary rules for workplace retirement accounts, like 401(k) plans. Your spouse has certain rights to be beneficiary of at least half the account.
- If you receive Medicaid, you may be limited in how you distribute your estate to someone other than your spouse.
- Leaving significant assets to non-relatives may trigger gift and estate taxes.
Because of these considerations, it’s important to consult an estate planning attorney before naming non-spouse beneficiaries. The attorney can help structure your estate plan appropriately.
How do I name someone other than my spouse as beneficiary?
Here are some steps to properly name a non-spouse as beneficiary:
- Review assets and accounts that allow beneficiary designations, like life insurance, IRAs, and transfer-on-death accounts. Name individuals on the appropriate beneficiary forms.
- Update your will and trusts to leave assets to other beneficiaries. Consult an attorney for will drafting and execution.
- For retirement accounts, follow procedures to name secondary beneficiaries in case your spouse disclaims their portion. Your spouse may need to sign a spousal consent form.
- Consider how much you are leaving non-spouse beneficiaries and evaluate any possible gift/estate tax consequences.
- Review beneficiary choices regularly and update forms after major life events like marriage, divorce, or having children.
Can I disinherit my spouse?
In most cases, you cannot completely disinherit your spouse. All states provide some protection for surviving spouses against being left with nothing. These protections include:
- Community property states – Your spouse has an automatic right to half of all community property assets.
- Elective share states – Your spouse can claim an elective share percentage (typically 1/3 to 1/2) of your estate.
- Homestead rights – A surviving spouse may be entitled to a life estate in your home.
- Support rights – Your spouse may be able to claim support from your estate, regardless of your will.
The only way to fully disinherit a spouse is through a properly executed prenuptial or postnuptial agreement. This allows you to contractually remove the elective share and other protections. However, prenups require certain disclosures and terms to be enforceable.
What if I get divorced or remarry?
Divorce and remarriage often necessitate updating your beneficiary designations. Typical considerations include:
- Remove your ex-spouse as beneficiary on accounts and insurance policies
- Update estate planning documents like your will and trusts
- Name your new spouse as beneficiary, or divide portions between your new spouse and children
- Review who is listed as executor, trustee, guardian, or agent under power of attorney
Be sure to make these updates in a timely manner after the divorce is finalized or when you remarry. For retirement accounts, there are specific rules regarding removing an ex-spouse as beneficiary pursuant to divorce.
Conclusion
While your spouse is commonly the top choice as beneficiary, you generally have flexibility to name other individuals. This allows you to distribute your assets based on your personal preferences and relationships. However, be mindful of important restrictions like spousal rights and tax considerations when naming non-spouse beneficiaries. Proper estate planning steps can help ensure your beneficiaries receive assets in the manner you intend.