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Essential Guide to Beneficiary Designations for Life Insurance: Estate Planning Insights for Berkshire hathaway Employees

What Is a Beneficiary?

The receiver of Death Proceeds

As an employee and retiree from Berkshire hathaway, it's important to know about designating a beneficiary. A beneficiary is an individual or entity you name (designate) to receive the proceeds of a life insurance policy on your life.

Irrevocable Versus Revocable

A beneficiary can be irrevocable or revocable. You cannot change an irrevocable beneficiary. An irrevocable beneficiary has a vested property interest in the life insurance death benefit (effective immediately upon being named as a beneficiary). This interest cannot be taken away or decreased without his or her consent. A revocable beneficiary is someone whose interest is contingent; that is, it can be decreased or terminated at any time.

Primary Versus Secondary Versus Final

Berkshire hathaway employees can name as many beneficiaries as they want, subject to limitations set by the policy. Most policies allow you to choose more than one beneficiary at each level and the proceeds would thereby be split equally between all beneficiaries surviving at a particular level upon the insured's death.

The beneficiary to whom the proceeds go first is called the primary beneficiary. If the primary beneficiary predeceases the insured, the secondary beneficiary becomes entitled to the proceeds upon the insured's death. A 'final' beneficiary can be named as well. Final beneficiaries will receive the proceeds only if they outlive the designated primary and secondary beneficiaries. Usually, charities or more remote relatives such as aunts, uncles, nieces, and nephews are named at this level.

In addition to the primary beneficiary, Berkshire hathaway employees should consider naming both secondary and final beneficiaries in case you outlive the primary beneficiary, you and your primary beneficiary die simultaneously, or the primary beneficiary is unable to collect the proceeds. In such cases, if you have not named secondary or final beneficiaries, the proceeds of the policy will pass to your estate and may therefore be subject to estate taxes. Naming secondary and final beneficiaries gives some extra protection against such eventualities.

Technical Note: If you and your primary beneficiary die simultaneously (and there are no other named beneficiaries), the proceeds are distributed under the Uniform Simultaneous Death Act (USDA). That is, you are presumed to have survived the beneficiary and the proceeds go to your estate.

Technical Note: A beneficiary who kills you by accident, in self-defense, or through gross negligence or manslaughter will be unable to collect the proceeds of insurance on your life. Every state bars intentional killers from profiting from their act.

Why Is Designating the Proper Beneficiary Important?

Estate Planning Goals of Life Insurance

In estate planning, life insurance is purchased for two primary reasons: 1) to provide cash to the insured's family members for daily living expenses, and 2) to provide cash for death taxes and estate expenses. In order to ensure that your beneficiaries receive the maximum benefit from life insurance policies on your life, you must properly structure ownership of your policies to avoid income and estate taxes that might deplete the funds. Proper designation of your beneficiaries is also important.

Caution: Berkshire hathaway employees should note that to avoid taxes, you must arrange proper ownership of policies on your life.

Subject to Federal Estate Taxes and/or Certain Limitations

Naming or changing the beneficiaries of your life insurance policies may have federal estate tax consequences. Additionally, naming or changing a beneficiary may be subject to some limitations. Therefore, Berkshire hathaway employees need to understand all the ins and outs of naming/changing a beneficiary.

Who Should You Name As Your Beneficiary In Order to Avoid Federal Estate Taxes?

Not Your Estate or Your Personal Representative (Executor)

Life insurance proceeds will not be includable in your gross estate for federal estate tax purposes unless: (1) the proceeds are payable to or for the benefit of your estate, (2) you possessed 'incidents of ownership' in the policy at the time of your death or at any time during the three years prior to your death, or (3) you transferred ownership of a policy within three years of your death.

Therefore, in order to avoid inclusion of the proceeds in your estate, thereby subjecting them to estate tax, you should not name your estate or your executor as a beneficiary. If you own the policy on your death (or within three years of your death), the proceeds will be includable in your estate whether you name your estate as your beneficiary or not.

The primary reason for not naming your estate or your executor as your beneficiary is that doing so subjects the proceeds to probate expenses and claims of creditors, whereas, if someone other than your estate or your executor were named, the proceeds would pass to that person free of such expenses and claims. It is a good idea for Berkshire hathaway employees to make sure that policies on their life that are owned by others do not name their estate or their executor as the beneficiary since this would cause inclusion of the proceeds in their estate when this would otherwise not be true.

Tip: Some state laws provide that proceeds payable to an estate or executor are treated as if they are paid to the ultimate beneficiaries of your estate (your heirs). The IRS honors state law in these cases. The effect of the IRS honoring such state laws is that the proceeds may not be taxable in the decedent's estate if the decedent did not own the policy prior to his or her death or within three years of his or her death or if the proceeds are directed by the decedent's will to a charitable beneficiary or the decedent's spouse.

Not to a Beneficiary to Satisfy a Debt

Naming a beneficiary to receive life insurance proceeds in payment of a debt will be considered by the IRS to be for the benefit of your estate, and the proceeds will be includable in your gross estate for estate tax purposes.

Not to a Beneficiary to Pay Death Taxes or Other Estate Debts or Expenses

Naming a beneficiary to receive proceeds under an agreement that requires him or her to pay death taxes or other estate debts or expenses will be considered by the IRS to be for the benefit of your estate, and the proceeds will be includable in your gross estate for estate tax purposes.

Not to a Beneficiary to Pay Alimony or Support

Naming a beneficiary to receive life insurance proceeds to pay alimony or support will be considered by the IRS to be for the benefit of your estate and these proceeds will also be includable in your gross estate for estate tax purposes. If the decedent/insured owns the policy on his or her death (or within three years of his or her death), ownership will cause the inclusion of the proceeds in the decedent/insured's estate regardless of who the ultimate beneficiaries are.

Who Should You Name As Your Beneficiary to Avoid Limitations?

No One, If You Are Incompetent

If you are incompetent (whether or not you are legally declared to be so), you cannot name or change a beneficiary. The test for incompetency to name or change a beneficiary is similar to the test for incompetency to execute a will; that is, do you have the capacity to understand your actions?

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Tip: There is a presumption that you are competent. If a party claims that you are incompetent, that party must prove it.

Not Your Employer, If You Have Coverage Under a Group Life Policy

Berkshire hathaway employees should note that some states do not allow you to name your employer as the beneficiary if your coverage is under a group life policy provided by that employer.

Not A Minor, Unless a Guardian Has Been Appointed (or a Trust Is Used)

Generally, insurers will not make settlements directly to minors. Berkshire hathaway employees should carefully consider whether to name a minor as a beneficiary unless they also appoint a guardian or use a trust.

Only As Allowed Under a Divorce Decree or Settlement Agreement

Your right to change a beneficiary may be limited by a divorce decree or settlement agreement. In some states, divorce automatically terminates a spouse's interest in insurance on the other spouse's life. In other states, divorce allows a policyowner to change the beneficiary upon divorce, even if the beneficiary is otherwise irrevocable.

Only a Specified Class, If You (The Insured) Are a Minor

In some states, if you (the insured) are a minor, you can name only a certain class of persons as beneficiaries. That class generally includes your spouse, parents, grandparents, and brothers and sisters.

Tip: Once a minor insured has reached the age of majority, he or she can change the beneficiary of a policy on his or her life.

Someone With an 'Insurable Interest'

Some states require that where you are not the owner of the policy, the beneficiary of the policy should have an 'insurable interest' in your life. The purpose of this rule is to prevent gambling. An insurable interest is a financial interest that would be adversely affected if you died. Blood and legal relatives are presumed to have an insurable interest.

Anyone, As Long As You Have an Existing Irrevocable Beneficiary's Consent

If you want to change the beneficiary, but have already named an irrevocable beneficiary, you need that irrevocable beneficiary's written consent to do so.

Tip: An irrevocable beneficiary's property right ends at his or her death.

Anyone, As Long as You Have Your Spouse's Consent If You Use Community Funds to Pay Premiums

If you live in a community property state, any assets acquired during the marriage are considered community property (i.e., each spouses owns an undivided one half interest in the property). A spouse's interest in community property cannot be disposed of by the other spouse. If you make premium payments from community funds, the insurance so purchased is also considered community property; you must, therefore, have your spouse's written consent when naming a beneficiary to such policies.

Should You Name Your Spouse As Beneficiary?

We'd like our Berkshire hathaway clients to consider that naming your spouse as a beneficiary may not be a good idea. If a spouse is named as the beneficiary, the unlimited marital deduction applies, and the proceeds will pass free of estate taxes regardless of who owns the policy. However, the proceeds will be included in the surviving spouse's gross estate (unless, of course, they have been spent before the surviving spouse's death).

By naming your spouse as the beneficiary, you will only postpone estate taxes, not avoid them entirely. Additionally, if you and your spouse die simultaneously and your spouse is named as the beneficiary of a policy on your life, the USDA provides that the beneficiary (your spouse) will be presumed to have predeceased the insured (you). Since your spouse will be deemed to have predeceased you, the unlimited marital deduction will be inapplicable, and the proceeds may be subject to tax in your estate.

How Do You Name or Change (I.E., Designate) a Beneficiary?

Complete a Beneficiary Designation form

When you buy life insurance, the insurer will provide you with a beneficiary designation form. Generally, the form need only be completed (i.e., the names of the beneficiaries filled in), signed, and dated by you.

Specifically Identify All Beneficiaries and the Distribution They Are to Receive

Berkshire hathaway employees should be specific when naming the beneficiaries. Make sure the designation clearly identifies to whom the proceeds are to be paid (and in what order if you are naming secondary and/or final beneficiaries). If you want the proceeds to be distributed to your children (including legitimate, illegitimate, and adopted children, and children from a previous marriage), specify the name of each child to be sure the ones you want to name as beneficiaries are included and the ones you don't want to name as beneficiaries are excluded. You may want to include a clause such as 'and any afterborn children' to provide for any children not yet born.

The phrase to my lawful children may disqualify illegitimate children in certain states. If you want to ensure that the proceeds go to your wife at your death, do not say 'to my wife, Anne Boleyn.' Rather, say 'to my present wife,' since one day Anne Boleyn may no longer be your wife.

Caution: Berkshire hathaway employees should note that t erms such as heirs, issue, per stripes, and per capita have legal definitions. Be sure you understand what the terms mean before you use them. These Berkshire hathaway employees should consult a lawyer if they are not sure.

Specifically Revoke Previous Designations

When changing a beneficiary, it is advisable to specifically revoke any previous designations by simply writing this on the change of beneficiary form.

Review Beneficiary Designations Every Two or Three Years or Upon a Change of Circumstances

You may want to review your beneficiary designations every two or three years to ensure they comport with your current circumstances and wishes. Additionally, Berkshire hathaway employees should be sure to check and update their beneficiary designations upon the occurrence of certain life events, such as marriage, divorce, remarriage, and the birth of children.

Can You Change a Life Insurance Beneficiary In Your Will?

No. A beneficiary designation made in your will does NOT override the beneficiary designation made on the insurer's form. For any Berkshire hathaway employees who want to change their beneficiary, you must execute a change of beneficiary form provided by your insurer. Do not rely on your will to do so.

How does the merger of the Johns Manville Employees Retirement Plan into the Berkshire Hathaway Consolidated Pension Plan specifically affect the retirement benefits for current employees at Johns Manville? In what ways can eligible employees of Johns Manville leverage the benefits of this merger to maximize their retirement planning?

Impact of Merger on Current Employees' Retirement Benefits: The merger of the Johns Manville Employees Retirement Plan into the Berkshire Hathaway Consolidated Pension Plan does not decrease the pension benefits previously earned by employees under their prior plans. Employees continue to receive the same benefits with the same payment options as provided by their prior plan. Any previous payment elections, beneficiary designations, and qualified domestic relations orders remain effective. This consolidation also maintains the insurance of pension benefits through the federal Pension Benefit Guaranty Corporation.

What are the implications for employees of Johns Manville if they choose to retire early prior to their Normal Retirement Age? How do the specific conditions set forth in the Berkshire Hathaway Consolidated Pension Plan guide early retirees from Johns Manville in making informed decisions regarding their benefit options?

Implications of Early Retirement: Employees of Johns Manville who choose to retire early, before their Normal Retirement Age, can still receive benefits. However, these benefits are adjusted based on the age of retirement. If an employee retires at 60, for instance, their monthly benefit payment from the plan will be reduced by a certain percentage for each month that the benefit payments start before the Normal Retirement Age. This reduction compensates for the longer period over which benefits are expected to be paid.

Given the unique characteristics of the Merged Plan, what should employees at Johns Manville consider when calculating their Average Final Salary, and how does this calculation impact their retirement benefits? Additionally, how is Covered Compensation factored into this adjustment, and what strategies can employees employ to ensure accurate calculations?

Calculation of Average Final Salary and Covered Compensation: When calculating the Average Final Salary for retirement benefits, it includes the highest-paid, five consecutive years out of the last ten years of employment. This calculation impacts the retirement benefits as it forms part of the formula used to determine the pension amount. Additionally, Covered Compensation, which refers to the average of the Social Security wage bases, is used to adjust portions of the salary in the benefits calculation, ensuring that the benefits align with national wage growth trends.

How can employees of Johns Manville navigate the various options available for retirement benefit payments outlined in the Berkshire Hathaway Consolidated Pension Plan? What key points should Johns Manville employees consider regarding the selection of forms of payment and potential tax implications in retirement?

Navigating Retirement Benefit Payment Options: Employees of Johns Manville need to consider the form of payment for their retirement benefits, as different options can have different tax implications and affect monthly income. Options typically include lump sums, annuities, or a combination. Employees should consider their financial needs, tax situation, and life expectancy when choosing the form of payment. Consulting with a financial advisor could be beneficial.

For employees at Johns Manville, what steps should they take to stay informed about their accumulated service and benefit service credits, particularly in relation to the changes brought about by the merger into the Berkshire Hathaway Consolidated Pension Plan? How do vested rights impact their eligibility for retirement benefits?

Staying Informed About Service Credits: To manage the transition and keep track of their service credits post-merger, Johns Manville employees should regularly review their service and benefit statements, maintain communication with the plan administrator, and attend any informational meetings or seminars offered by Berkshire Hathaway. Understanding how service credits are calculated and tracked ensures that employees can accurately plan for retirement.

What is the process for reemployment under the Terms of the Merged Plan for former employees of Johns Manville, and how can they ensure their accumulated benefit service is credited effectively upon rehire? What are the implications of this reemployment on their retirement benefits, particularly concerning their previous employment history?

Reemployment and Accumulated Benefits: Reemployed former employees of Johns Manville should verify how their accumulated benefits are treated upon their rehire. Generally, benefits accumulated during previous periods of employment will be credited upon rehire, but specific plan provisions should be consulted to confirm how reemployment affects accrued benefits and eligibility for additional benefits.

What do the terms of the Berkshire Hathaway Consolidated Pension Plan dictate regarding disability retirement benefits for eligible employees at Johns Manville? How should employees approach the application process for disability benefits, and what criteria do they need to be aware of to qualify?

Disability Retirement Benefits: Eligible employees of Johns Manville who become disabled according to the terms of the plan may qualify for disability retirement benefits. The process involves a determination by the plan administrator, and employees must meet specific criteria outlined in the plan documents to qualify. Understanding these criteria and the required documentation is crucial for accessing disability benefits.

How can employees of Johns Manville ensure they have adequate protection for their beneficiaries under the retirement provisions outlined in the Berkshire Hathaway Consolidated Pension Plan? What specific steps can employees take to secure these benefits, and how can they keep their beneficiary designations updated?

Beneficiary Protections: Employees should regularly review and update their beneficiary designations to ensure that their retirement benefits are distributed according to their wishes upon their death. This includes making any necessary changes following life events such as marriage, divorce, or the birth of a child.

How does participation in the Merged Plan differ for salaried and hourly employees of Johns Manville, and what specific eligibility criteria apply to each group? How can understanding these differences improve retirement planning for employees across the different classifications?

Differences in Participation for Salaried and Hourly Employees: The eligibility and benefits might differ between salaried and hourly employees under the Merged Plan. Understanding these differences helps employees make informed decisions about their retirement planning and benefit utilization.

How can employees of Johns Manville contact the Local Benefits Administrator for assistance regarding their retirement benefits and the contents of their plan documents? What are the recommended methods of communication for inquiries or requests regarding their Merged Plan benefits?

Contacting Local Benefits Administrator: Employees should contact their Local Benefits Administrator for any inquiries or assistance regarding their retirement plan. Keeping the contact information updated and consulting the administrator for guidance on plan provisions and benefit claims is advised for navigating their retirement benefits effectively.