By Elizabeth A. Caruso, Esq.
Myth or fact?
I had my will drafted to distribute my retirement accounts to my children, so it doesn’t matter who is written as the beneficiary on the accounts.
Myth!
Beneficiary designations on assets override anything written in a will or trust regarding those assets. Read on for the how and the why.
Do you know who’s listed as the beneficiary on your old 401(k)? What about that life insurance policy you bought back in the ’90s? Or the checking account you opened decades ago?
If you’re not sure, you’re not alone, but you might want to find out soon. I have surprised several clients in the past could of weeks with this information: your beneficiary designations and account ownership can completely override your will or trust.
Accounts like retirement plans (401(k)s, IRAs), life insurance policies, annuities, and payable-on-death (POD) or transfer-on-death (TOD) bank accounts pass directly to whoever is named as the beneficiary on the account paperwork, regardless of what your will says. These are called “non-probate assets” and they skip the whole probate process entirely because they have designated beneficiaries. The only assets that are subject to probate are assets in the decedent’s name alone.
The same goes for how an account is titled. If you own a house or bank account jointly with someone with rights of survivorship, that asset goes straight to the surviving co-owner the moment you pass, no matter what your will says.
Imagine an elderly woman updates her will to split everything evenly among her three grandkids, but her old life insurance policy still lists her late husband’s name as the beneficiary, with her son as the backup. Her will means nothing here. That policy goes exactly where the paperwork says, to the son, whether she wants it to or not. Even worse, imagine a scenario where a married couple gets divorced, but never updates beneficiary designations away from the ex-spouse.
The good news is, this is completely within your control. Here’s a simple checklist:
• Make a list of every account you own: bank accounts, retirement accounts, insurance policies, annuities.
• Call or log in to check who’s currently listed as beneficiary on each one.
• Update anything outdated, especially after a divorce, remarriage, death in the family, or birth of a child.
• Double-check joint ownership on real estate and bank accounts to make sure it reflects what you actually want.
• Review your list every few years, or after any major life change.
A little bit of homework now can save your family a ton of headache later. Your will and trust are important tools, but they’re not the whole picture. Beneficiary forms and account titling are quiet but powerful tools in their own right and they have the final say on many of your most valuable assets.
When you meet with an elder law attorney, these are the types of discussions you will regarding beneficiary designations and how they may match or differ from estate distributions.
About the Author: Elizabeth A. Caruso, Esq. is an attorney at Legacy Legal Planning, LLC, in Norwell. She has been practicing estate planning, probate, and elder law on the South Shore for more than a decade. If this article has sparked questions for you, please feel free to reach out via phone 781-971-5900 or email client@legacylegalplanning.com to schedule a time to discuss your unique situation.
