When people discuss their estate planning, they often focus on their Wills and Trusts. One thing that often gets overlooked is their beneficiary designations. A beneficiary designation will override the terms of your Will or Trust. If you have a Will or Trust that gives to one person but a beneficiary designation that gives to another, then the beneficiary designation will have control over those assets. These accounts then pass to the beneficiary upon the death of the original owner of the account. When you change your beneficiary designation on your account, whether it is a Pay-on-death (POD) or a Transfer-on-death (TOD), these accounts are not part of your probate estate. Changing your bank accounts or investment accounts beneficiaries is as easy as going to the bank or downloading their change of beneficiary forms online.
Whenever there is a lifechanging event in your life, you should take a look at your estate planning documents and your beneficiary designations. For example:
- Marriage: If you have recently been married you may want to change your beneficiary designation and/or update your estate planning to your spouse.
- Divorce: If you have recently been divorced and have your prior spouse listed as a beneficiary, then, upon your death, the asset will pass to the prior spouse.
- Children: Arrival or adoption of a child is a time to consider who you would want to consider managing your assets for your child.
- Onset of a serious illness or disability: A recent diagnosis may make you reconsider updating your beneficiary designations or estate planning documents. This diagnosis or a progressive illness could be a physical disability that affects a person’s mobility or dexterity, an intellectual or learning disability, a psychiatric illness, visual impairments, hearing impairments, or neurological disorders.
- Death: After one passes their beneficiary will need to present the financial institutions with a death certificate.
A Will serves many important functions, including the appointment of a personal representative to administer the estate, instructions on the payment of taxes, funeral services and administrative expenses, and the distribution of remaining assets. A Will does not dispose of assets that pass by contract (beneficiary designation), such as retirement accounts or insurance, or certain jointly held property. A Will directs property owned by the individual at the time of his or her death in his or her name alone, without a beneficiary designation (probate property). Joint property passes to the joint owner by operation of law. Similarly, with retirement accounts like IRAs, the named beneficiary on the account inherits the asset upon the account holder’s death—outside of the Will and the probate process.
You may have or heard of the following types of Trusts:
- Charitable trust
- Special needs trust
- Medical trust
Each may serve slightly different purposes, but the goal is to protect assets held in a trust to avoid estate taxes, future unknown creditors, liens, divorce, probate, and the list goes on.
If you have created a Trust, and you are placing bank accounts into this Trust, you must name the beneficiary of this account as the name of the Trust, not any one person. This is considered funding your Trust by retitling your assets.
If you have any questions regarding creating a Will or a Trust, contact Lannik Law, LLC to schedule your free consultation today.