Plenty of aspects of estate planning can be addressed in a will or using a tool like a trust, but it is equally important to consider the value of naming beneficiaries. Even if you forget to make a will, designated beneficiaries on certain accounts allows the individuals who receive these assets to bypass probate and have these assets distributed immediately to the people you’ve named.
In fact, where applicable, beneficiary designations override stipulations in a will. So even if your will says that someone else should receive your IRA, the form officially filed with your IRA account manager naming a beneficiary overrides that.
You can and should review your beneficiaries on a regular basis as well as anytime you sign up for a new account that requires naming a beneficiary. You should put beneficiaries on accounts including:
- Bank accounts
- Taxable brokerage accounts
- Employer sponsored retirement accounts such as 401(k)s
- Individual retirement accounts
You may also be able to register certain accounts as transfer on death such as vehicles, real estate, non-retirement brokerage accounts and non-retirement bank accounts.
If you have any major changes in your life, such as a new child you wish to include as a beneficiary or a divorce, you’ll want to update your forms at that time. Otherwise, the company managing your account has a legal responsibility to distribute those assets to the most recently assigned beneficiaries, which may not line up with who you want to receive assets. Since these supersede a will, it is just as important to keep them updated throughout your life.
To learn more about this process and how to ensure that your beneficiary designations work with the rest of your estate plan, it’s valuable to sit down and discuss all of your assets and liabilities with a local estate planning lawyer.
