estate planningEstate planning can give you control over what happens to your wealth after you pass away. In some cases, an individual doesn’t designate a person as his or her beneficiary. Depending on the specific situation, this can have different effects on how the finances are distributed.

What if you don’t designate a beneficiary at all?

If you never designated a beneficiary, then most states will immediately distribute your IRA value to your spouse. Some states, including California, Nevada, Washington, and Wisconsin, require notarization so that the spouse can receive benefits. If the deceased is not married, the situation can get a bit more complicated. Unless otherwise noted, most states will next pass the estate on to dependent children, then dependent parents, then non-dependent children, and, finally, non-dependent parents.

If there are no children, no spouse and no parents, the money would go to the “Estate of the Deceased,” at which point the court would decide who the beneficiary would be. While this is not typical, in my experience the recipient has usually been a relative when there is no spouse or children to receive the money—but every state is different.

What if you designate an organization as your beneficiary?

Not everyone chooses to designate a person as the beneficiary of an estate. Instead, many people name non-profit organizations as beneficiaries. This lets them give back to the community with a final donation. This option is especially popular with people who either have no family or who feel that their family members do not need money from the estate.

When you name a non-profit organization as a beneficiary, the group doesn’t have to pay any taxes on what it receives. That’s a huge boon to non-profit organizations that desperately need money to improve their communities.

What if you designate a trust as your beneficiary?

If you have an IRA, then you can designate a trust as your beneficiary. This works well for those who want to support family members or friends without giving the money directly to them. It also reduces the amount of taxes the recipients will have to pay.

You can also choose to create a special needs trust. If you have a loved one with a significant medical problem, then it often makes sense to create a trust instead of leaving the money to him or her.

When you create a trust, the recipient has no control over the funds; the money is used to pay certain bills. That means the trust does not add to the person’s annual income. If you were to leave money directly to the recipient, the inheritance could interfere with government-funded assistance and programs, such as Social Security’s Supplemental Security Income (SSI) or government-subsidized housing.

Estate planning can seem complicated. Indeed, you have plenty of options when planning where your wealth will go after you die. Consider whether to name a beneficiary (or beneficiaries) and to make sure that you complete the proper paperwork so that these people or organizations will receive a percentage of your estate.

If you don’t name your beneficiaries, then legal battles could drag your family through a painful ordeal.

Jeff Rose is a Certified Financial Planner and Iraqi combat veteran. He blogs at Good Financial Cents, Soldier of Finance and Life Insurance By Jeff.