When planning your estate, you might assume that your will is the final word on asset distribution. However, that’s not always true. Some assets bypass your will entirely due to beneficiary designations. Understanding how these work ensures that your estate plan truly reflects your wishes.
What Are Beneficiary Designations?
Beneficiary designations are legally binding instructions on financial accounts that determine who receives the asset when you pass away. They apply to:
- Life insurance policies
- Retirement accounts (401(k), IRA, etc.)
- Payable-on-death (POD) and transfer-on-death (TOD) accounts
- Annuities and investment accounts
Since these designations override instructions in a will, keeping them updated is crucial to prevent unintended outcomes. Learn more about how beneficiary designations work on Investopedia.
How Wills and Beneficiary Designations Differ
A will is a legal document that outlines how your assets are distributed after death. However, it only applies to assets held solely in your name without a designated beneficiary.
Key Differences:
- A will governs real estate, personal property, and financial accounts without named beneficiaries.
- Beneficiary designations override will provisions for certain assets.
- Assets with beneficiary designations transfer directly to the named individual(s), skipping probate.
For a more detailed breakdown, check out this NerdWallet guide on wills and trusts.
Which Takes Precedence?
In nearly all cases, beneficiary designations take priority over a will. If there’s a conflict—such as naming one person in your will but another on a life insurance policy—the beneficiary designation wins.
Avoid These Common Mistakes
- Failing to Update Beneficiary Designations – Life events like marriage, divorce, or the birth of a child may require updates.
- Not Naming a Contingent Beneficiary – If your primary beneficiary predeceases you, your assets may go through probate.
- Assuming a Will Overrides Beneficiary Designations – Always review account designations to ensure they match your estate plan.
For more guidance, visit The National Association of Estate Planners & Councils.
How to Keep Your Estate Plan in Sync
- Regularly review and update beneficiary designations, especially after major life events.
- Work with an estate planning attorney to coordinate your will and beneficiary designations.
- Consider setting up a trust if you want more control over asset distribution.
Ensure Your Wishes Are Honored
Misaligned estate plans can create confusion, delays, and legal disputes. Our team can help ensure your estate plan is clear, effective, and up-to-date. Schedule a consultation today to get expert guidance tailored to your needs.