Coordinating with Beneficiary Designations

One of the often overlooked, but key parts, of an estate plan is the coordination of beneficiary designations for life insurance and retirement plan accounts with Wills or Trusts. This is because beneficiary designations govern how those assets pass without regard to the terms of a Will or a Trust (or even the intended beneficiaries of a Will or Trust). In short, a beneficiary designation trumps the terms of any estate planning document.

This can, and many times does lead to seriously unintended outcomes. Assuming a Will or Trust was the last, best, and final expression of a personal intentions for who should receive assets and “how” those assets should be received, beneficiary designations that are not properly coordinated with the documents could result in accounts ultimately passing to different beneficiaries, under a different time-frame, or without the oversight of a fiduciary selected in a Will or Trust.

The solutions to this challenge are to carefully update beneficiary designations on life insurance, work based retirement plans, and individual accounts (such as IRAs) at the time new estate planning documents are adopted. The next step is the keep those designations current as jobs change, accounts are moved, or new life insurance policies purchased.

Other typical assets often have beneficiary designation options, including most annuity contracts. Further, bank accounts, CDs, and even brokerage and investment accounts often have the option to place pay-on-death or transfer-on-death designations into effect. These have the same risks and need for careful attention as retirement accounts and life insurance policies.