On the surface, it may seem that beneficiary designations don’t have a lot to do with your estate planning. However, anything to do with your financial worth – anything you own – affects your estate. In this article, we will consider the importance of coordinating your beneficiary designations with your estate plan.
Basic Estate Planning
An estate plan typically consists of a Last Will and Testament (a “Will”), a durable power of attorney, and an advance directive (a healthcare power of attorney or living will, for example). Some people also add trusts to their estate plan. While you don’t fill out your beneficiary designations at your attorney’s office, they still affect your estate planning.
What may people don’t know is that your beneficiary designations generally trump your estate plan.
Beneficiary Designations, Generally
Insurance policies list at least one beneficiary to receive the insurance payout. Most financial institutions also allow their accountholders to submit beneficiary designations. These state who will receive funds remaining in the accounts when the accountholder dies.
Many people don’t realize that these beneficiary designations should be reviewed periodically to make sure they still reflect your wishes.
Before meeting with your estate planning attorney, gather information about all your financial accounts. Know your financial account balances and insurance payouts. Then, make sure your estate planning attorney understands the full extent of your insurance policies, financial holdings, and investment accounts.
The funds you distribute through your beneficiary designations may affect how you distribute property through your estate. For example, Shawn split his estate three ways between his second wife and his two children. He compared the value of all his property, cash, investments, insurance, and so on. Then, he completed beneficiary designations for all his financial accounts. His attorney also cautioned him to review his estate plan and designations after any major life events.
After an accountholder passes away, accounts with beneficiary designations are paid out, usually without going through probate. Without careful planning, it’s possible that your estate will be distributed very differently than you had planned.
For example, Bella wanted to split her estate equally between her three children, with a small bequest going to her best friend, Julie. To make things easier, she makes Julie the beneficiary of a small investment account rather than naming her in the Will. Ten years later, Julie is shocked to learn that the investment account has done very, very well and she, in fact, will inherit more than Bella’s children. Obviously, this was not Bella’s intention, but she failed to coordinate her beneficiary designations with her estate plan.
Estate Plans and Beneficiary Designations Go Together Like Peanut Butter and Jelly
However, the peanut butter will not be harmed if the jelly is a little sloppy. The same cannot be said of your estate plans. Out-of-sync beneficiary designations have the potential to derail your carefully drafted estate plan and cause long-term problems for your heirs. Attorney Bruce Adams assists clients like you with their estate planning matters. Call us at 256-237-3339 to schedule an appointment. We are located in Anniston, Alabama, but help clients in surrounding Calhoun, Cleburne, Etowah, and St. Clair Counties.