Beneficiary Designations: The Overlooked Step in Updating Your Will
You recently updated your will, congratulations! Before you will find a safe place to keep your documents and put estate planning out of mind, you need to take one more step – review your beneficiary designations. Many, if not most, of your assets may have a beneficiary designation. This means that at your death the asset passes to the beneficiary listed, outside of probate, and according not to what your will says but rather what your beneficiary designation says.
Beneficiary designations are a wonderful tool to avoid probate, which can speed up your beneficiaries’ access to funds and reduce their costs to access your assets. However, beneficiary designations can also be a reason why estate plans go wrong. For example, Sally updates her will to remove Bill as a beneficiary and instead leaves everything to Tim. However, she has a bank account with a beneficiary designation leaving everything to Bill. If Sally does not change the beneficiary on her account from Bill to Tim, then Bill will receive the entire account. This could be a significant portion of Sally’s estate. For this reason, it is important when you make a change or update to your will you also consider you beneficiary designations.
While you may be familiar with beneficiary designations on accounts such as your retirement savings or life insurance, you might be surprised to know that most financial accounts can have a beneficiary. For example, have you ever seen a bank account with a payable on death (POD) or transfer on death (TOD) beneficiary listed? This is an efficient way to transfer that account upon death without probate. However, it is always important to review these elections with your estate planning attorney to make sure these designations match your estate plan.