Avoid Disaster by Making Sure Your Beneficiary Forms and Estate Plan are in Sync

A wide range of financial products allow you to name a beneficiary upon your passing. The benefit of naming a beneficiary is that the assets go directly to the named beneficiary upon the account owner’s passing, often bypassing the long and expensive process of probate. The danger, however, is that when these designations are not carefully coordinated with your estate plan, you can inadvertently disinherit a loved one, cause a disabled family member to lose government benefits, leave your heirs with a massive tax bill, or otherwise fail to achieve your goals.

In the event of your untimely death, the way your beneficiaries are determined is highly dependent on how your property is titled. Generally speaking, property that you own individually, such as vehicles, boats, airplanes, real estate, bank and investment accounts, bonds, stock certificates, jewelry, antiques, art and other personal property are controlled by your will or trust, if the property is owned in your trust. If you do not have a will or trust, these assets typically go to your heirs at law (determined by intestate succession).

On the other hand, retirement accounts, life insurance and annuities are controlled by beneficiary designations. If you have not named beneficiaries, or if your primary beneficiaries predecease you and you do not have contingent beneficiaries name, there can be serious implications for your family after your death. You can also name beneficiaries for certain bank or investment accounts, called Pay-on-Death (POD) designations or Transfer-on-Death (TOD) designations.

Simply put, a beneficiary designation is a contractual agreement where a bank, insurance company or financial institution agrees to pay the death benefit of a bank or investment account, retirement account, life insurance policy, or annuity to the person or entity you have chosen upon your death. For example, Bob may list Susan, his sister, as the POD beneficiary for his savings account at ABC Bank. When Bob dies, ABC Bank will pay Susan the balance in Bob’s account, without Susan having to first go to probate court.

Properly choosing a beneficiary and making sure it falls in line with your estate plan is often more complex than it initially appears. Completing a beneficiary designation form is not just a routine task that you complete when filling out your bank account, life insurance, or human resources documents. In fact, naming beneficiaries is something that you should take very seriously. You should consult with your estate planning attorney when creating or updating any beneficiary designations.

It is also important to note that beneficiary designations supersede your will or trust. For example, let’s suppose that Bob’s will stated that his entire estate is to be given to Elizabeth, his daughter. Since Bob used a payable on death beneficiary designation on his ABC Bank account, that asset will instead go to Susan, not Elizabeth. In other words, if you name one relative to inherit assets in your will or trust, but some of those assets have someone else listed on the beneficiary designation, then your entire plan isn’t going to work as you likely intend. For this reason, it is vital to ensure that your beneficiary designations are aligned with your estate plan to fully protect you and your family.

The best strategy for ensuring your wishes are carried out is to first understand how naming beneficiaries has a significant impact on your heirs and then coordinate your wishes with an estate planning attorney. We are here to help you coordinate all of your assets and beneficiary designations with your estate plan so that your plan works as intended and your goals and wishes are carried out the way you desire.