Maximizing Estate Efficiency: The Role of Beneficiary Designations

There were over 150,000 probate filings in the state of Florida in fiscal year 2022-23.[1] As part of a comprehensive estate plan, beneficiary designations are a simple and effective way for donors to support their favorite charities while bypassing some of the hassles of probate. Beneficiary designations allow an account owner to direct a percentage of their account to transfer directly to an individual or charity, such as the University of Florida, at the time of their death without that asset being subject to the probate process.

There are two types of beneficiary designations: pay-on-death (POD) and transfer-on-death (TOD). A POD designation allows the financial institution to pay out the balance of the account to the beneficiary, whereas a TOD designation transfers ownership of an asset or account to the beneficiary. POD designations are common on financial accounts, like bank accounts, life insurance policies, retirement accounts, and donor advised funds.

In most cases, a donor can add or update a beneficiary on an account online, through their financial services portal. When leaving the University of Florida as either a full or partial beneficiary, please use the legal name: “University of Florida Foundation, Inc.” Some accounts may also require UF’s Federal EIN/Tax ID number: 59-0974739. If an online option is not available, or a donor prefers not to use them, the account administrator generally has a form the donor can complete to make the changes.

Donors with certain retirement accounts [IRAs, 401(k)s, 403(b)s, etc.] can benefit greatly from leaving the University of Florida as a beneficiary. These assets can be taxed at more than 60% if left to heirs (ordinary income plus estate tax), and even more if the donor is in a state with state income and estate taxes since retirement assets constitute income in respect of a decedent (IRD).  Additionally, non-IRD assets, such as real estate or stock, receive a stepped-up basis at death[2], meaning their value is “reset” to the FMV on the date of death. 

Donor-Advised Funds (DAFs) are an increasingly common vehicle for donors to facilitate their charitable giving. When a donor with a DAF passes away, they can either name a successor to continue making grants (a transfer-on-death designation) or they can name a qualified charitable organization, like the University of Florida, to receive the remaining balance of the DAF (a payable-on-death designation). It is very important that a donor choose one of these options, otherwise the funds in the DAF will be distributed per the financial institution’s guidelines, usually to their corporate charitable fund.

The use of beneficiary designations allows the account to be distributed without going through the probate process, which generally is faster and easier for the intended beneficiary. A beneficiary designation also overrides any contrary instructions in a will or trust. Because of this, it is important to review beneficiaries regularly, as beneficiary designations can cause issues with asset distribution, particularly if the designation is outdated or incomplete.

As with any gift to the University of Florida, donors who leave UF as a beneficiary on an account are able to designate their gift purpose through the creation of a gift agreement. While entirely revocable for the donor, this document ensures the University of Florida accurately administers the gift according to the donor’s intended wishes. It is therefore important for a donor to share the purpose of their gift with UF. For many donors, a gift made through a beneficiary designation is used to supplement a gift that was already created during the donor’s lifetime. In these instances, a gift planner can help document the donor’s wishes to ensure they are understood and can be carried out by completing a Revocable Planned Gift Notification form. Accurately documenting a gift through a gift agreement or by signing a Revocable Planned Gift Notification form ensures that the gift will be used for the purpose the donor intended.

---

[1] Florida Office of the State Courts Administrator

[2] IRC 1014