Many people assume their will is the final word on who receives their property. Unfortunately, this is not always true. There are legal tools that can override your will, even when the will is executed within the bounds of the law and clear on the owner’s intentions. One of the most common tools that can trump the language of the will: beneficiary designations.
What is a beneficiary designation?
A beneficiary designation is a form you complete with a financial institution or plan administrator naming who receives the asset when you die. Because the transfer is contractual, the institution generally follows the designation on file, not the instructions in your will. Beneficiary designations are generally helpful because they can speed up transfers by avoiding probate as well as reduce administrative costs and delays. However, a failure to update these designations can create surprises if they are outdated after marriage, divorce, a birth, or a death.
The key takeaway is simple: your will and your beneficiary designations must work together, or your plan may not reflect your intent.
What are common examples of assets that pass by beneficiary designation?
Frequent examples include:
- Retirement accounts such as 401(k) plans and IRAs
- Life insurance policies
- Annuities
- Payable-on-death bank accounts and certificates of deposit
- Transfer-on-death brokerage accounts
If you have any of these, it is important to check them for beneficiary designations.
How do I check and update beneficiary designations?
Once you identify the accounts, you can request the current beneficiary confirmation from each institution, in writing if possible, and confirm primary and contingent beneficiaries. It is wise to update designations after major life events and review them at least every two to three years.
A will remains a foundational estate planning document, but it does not control everything. Beneficiary designations can override will provisions and they often govern some of the most valuable assets a person owns. A periodic beneficiary audit is one of the most efficient ways to prevent conflicts, reduce delays and ensure your plan carries out your intentions.