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DOES A WILL OVERRIDE A BENEFICIARY DESIGNATION?

Avoid these costly mistakes when naming a beneficiary.

Article published: March 22, 2024

By: Rodney Weaver Director of Estate Planning

Do you have a last will and testament? If so, you鈥檙e already ahead of two-thirds of U.S. adults who lack this vital estate planning document.1 But even if you have one, that doesn鈥檛 mean your estate plan is covered.

If it鈥檚 been years since you鈥檝e opened your accounts, you might not be able to remember who the named beneficiary is on each one.

Are the beneficiary designations up to date on your retirement accounts, IRAs, annuities and life insurance policies? What if that person has died or others have been born since? What if your relationship has changed and you no longer want that person to get your money upon your death? (Think marriage, divorce, the death of parents, the birth of children or the falling out of an old friendship).

It鈥檚 not enough that you have a will, because a beneficiary designation will override it. So, how can you help ensure your estate assets wind up in the right hands?

To understand common estate planning mistakes, let鈥檚 first examine the difference between a last will and testament and beneficiary designation.

Beneficiary designation vs. will: Why is it so important to know the difference?

Regardless of what your will says, whoever is named as the designated beneficiary on each account will receive that asset. Period.

Your will only provides instructions for how you wish to distribute any estate assets that remain without a named beneficiary or surviving joint owner. On the other hand, a beneficiary designation applies to a specific asset, such as your retirement account, investment account, bank account, any annuities you have or a life insurance policy.

But overestimating the power of a last will and testament is by no means the only costly mistake people often make when it comes to estate planning.听

5 COMMON MISTAKES TO AVOID WHEN DESIGNATING PRIMARY BENEFICIARIES

Here are five common mistakes you鈥檒l want to avoid in your estate plan:

1. Not naming a beneficiary

If you don鈥檛 name a beneficiary on any specific estate asset, your estate becomes the beneficiary. That means the asset could be subject to a lengthy, expensive and cumbersome probate process, which may complicate how and when the assets are distributed.

2. Failure to list contingent beneficiaries

If your primary beneficiary dies first and you haven鈥檛 named a contingent (or secondary) beneficiary, it鈥檚 the same as having no beneficiary. Or, for example, if you and your spouse die at the same time (say, in an accident) and you haven鈥檛 named the kids as your contingent beneficiaries, your estates go into probate for a judge to help oversee how the assets are distributed.

Naming a contingent beneficiary has another advantage, too: If the primary beneficiary doesn鈥檛 want the asset for some reason (perhaps because of tax implications), he or she can waive rights to it 鈥 called disclaiming 鈥 allowing the money to pass to the contingent beneficiary. Many surviving spouses do this for their children, and it can be a smart way to avoid or reduce taxes. But if you fail to name a contingent beneficiary, this opportunity is lost.

3. Lack of specifics

Simply listing 鈥渕y children鈥 as your multiple beneficiaries can be a problem, especially in a blended family. Many states don鈥檛 recognize stepchildren when the word 鈥渃hildren鈥 is used. Or a family member with whom you鈥檝e lost contact and with whom you don鈥檛 intend to share your assets could suddenly turn up and try to claim all or part of the estate.

Finally, what happens if one child predeceases you? Unless you get specific, that child鈥檚 share will go to your other children instead of to that child鈥檚 children. Unless it鈥檚 your intent to disinherit some of your children or grandchildren, you need to be more specific with each beneficiary designation.

4. Using shortcuts

It is perfectly acceptable to list multiple beneficiaries on your retirement accounts and other assets. However, simply listing 鈥渕y children鈥 as your beneficiary, intending for the account to be divided equally among your children can pose a problem, especially in a blended family. If you have three children and want all three to receive an asset, you must name all three as beneficiaries.听

5. Not considering the financial or emotional readiness of beneficiaries

Your heirs will get the money from your IRAs, retirement accounts, life insurance and annuities almost immediately upon your death, with no restrictions. If this worries you, consider听naming a trust as beneficiary; then you can place limits on when and how the money is to be used.


Keep in mind, in any case, it鈥檚 still likely there will be a probate proceeding after someone dies, even if all of the assets are to be distributed via beneficiary designations. And even with a small probate proceeding, there will be some fees and expenses, the decedent鈥檚 final income tax return will need to be filed and income taxes may need to be paid. If the executor doesn鈥檛 have access to any funds in the estate to pay for these expenses 鈥 because all of the assets were distributed via beneficiary designations 鈥 they may find it difficult to pay these fees. If they鈥檙e a beneficiary of any of the assets, they may end up paying for these expenses out of their own pocket if the other beneficiaries don鈥檛 agree to chip in.听

In some cases (particularly if there is only one beneficiary), distributing all of your assets via beneficiary designations may be a good idea, but in other situations (such as having multiple beneficiaries who don鈥檛 get along), it may not. Distributing via a will is more costly and time-consuming, but in some cases, it may be the fairer choice. In many cases, creating a trust can mitigate a lot of challenges, but this is often more costly to set up and may be more complicated to maintain. As you can see, the choices are complex.

You鈥檙e devoting a lifetime to accumulating assets. Make sure their disposition is managed the way you want, or your efforts could be for naught. If you have any questions about your current accounts鈥 beneficiary designations, or which options may be best for you and your estate, connect with a financial advisor and an estate planning attorney so they can help you review your plan and discuss options that suit your personal circumstances.

1 Caring.com. (2024, January). 2024 Wills and Estate Planning Study. Retrieved February 27, 2024, from

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The information regarding estate planning should not be construed as tax or legal advice and is for general informational purposes only.

Neither 91论坛 Engines nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from your qualified tax and/or legal professionals to help determine the best options for your particular circumstances.


Rodney Weaver

Director of Estate Planning

I have over 20 years of experience working with high-net worth clients from around the country, educating them on federal and state estate tax strategies as well as trust planning, charitable gifting, and various advanced estate planning techniques designed to increase estate transfer efficiency, reduce costs, and implement overall estate objectives. I am licensed to practice law in New Hampshire. I reside in New Hampshire with my wife and two children.



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