You may think your estate plan is complete just because you’ve signed a will or trust. Not true!
In every single case, if your beneficiary designations are not reviewed when you sign a will or trust, your estate plan likely will not work out as you think.
Here’s what I mean: You probably have retirement accounts or life insurance policies or both. Whether you have an employer sponsored retirement account, your own IRA, a life insurance policy through work, or an individual stand-alone life insurance policy – all of these types of assets have one thing in common: BENEFICIARY DESIGNATIONS. When you opened these accounts, you named beneficiaries as part of the process.
But time has passed since then. Maybe you were single when you opened the account and now you’re married, or maybe you didn’t have children when you opened the account and now you have children. Maybe you named your now-ex-spouse as a beneficiary but you’ve since divorced, or you named a minor child as the beneficiary, or you named a sibling as the beneficiary with the verbal promise they’ll use the money to support your children. Whatever the case, your beneficiary designations are out-of-date by the time you sign a will or trust.
Why does this matter? Beneficiary designations trump a will or trust. Any asset with a named beneficiary pays out to the named beneficiary regardless of what your will or trust says.
We’ve seen a life insurance policy paid out to the ex-girlfriend of someone who passed away and who left a surviving spouse and children. Sadly, the deceased person’s surviving wife and children had no right whatsoever to the life insurance policies even though his estate plan said “I leave everything to my surviving spouse and children” – because the beneficiary designation to the ex-girlfriend trumped his estate plan.
We’ve also seen a life insurance policy with a minor child named as beneficiary, throwing the surviving family members into the probate court system where a judge is deciding who is in charge of the life insurance proceeds until the child turns 18. Everything filed in the probate court is public, exposing your and your child’s private information to solicitors, and then you have a young adult who just turned 18 in charge of a very large sum with no more mentorship or oversight on how to use the money responsibly.
The good news is that you can update beneficiary designations at any time.
This is the hidden danger of do-it-yourself estate plans – a computer program is not going to review your beneficiary designations or even tell you it’s important. If your attorney is not asking you about beneficiary designations as part of the estate planning process, you might as well do a do-it-yourself estate plan because in either case, your estate plan will very likely not play out as intended since beneficiary designations trump a will.
The bottom line: A beneficiary designation is an incredibly powerful tool, so it is imperative that you pay very close attention to them and make sure to review them when you are signing a will or trust.
So, how should you name your beneficiaries? Here’s your typical “attorney answer” – it depends on your specific circumstances! At Wills & Wellness, we take a holistic and comprehensive approach to your estate planning and we want to ensure your beneficiary designations achieve what you want them to in light of your family, your assets, and your goals. The last thing we want is for the estate plan you worked hard to put in place to be trumped by something you weren’t even aware of.
Your Wills & Wellness Estate Planning Attorney will always review your beneficiary designations as part of your planning to ensure your entire estate plan is harmonious and will achieve your ultimate wishes at the end of the day.