Many financial accounts provide the account holder with the option to designate beneficiaries. If a beneficiary is designated on a financial account, upon the death of the account holder, the assets to the account do not pass according to the provisions of the decedent’s Last Will and Testament, but instead will pass to the designated beneficiary. Therefore, such designations are a crucial part of estate planning, and can significantly change the distribution of an estate. Yet beneficiary designations are over overlooked during the estate planning process. Accounts with designated beneficiaries must be considered when structuring your estate plan and when estate planning documents are being drafted. You must ensure your beneficiary designations are consistent with the rest of your estate plan and together with your estate planning documents accomplish your estate planning goals. I have met with many clients who needed significant revisions to their Will because their beneficiary designations were not considered when the Will was drafted. Beneficiary designations which are not considered during the consultations and drafting of estate planning documents often skew or even completely override the intent of the decedent.
Often, people do not consider the effect a beneficiary designation will have on their estate plan. Instead, believing it to be a simple decision, they just pick someone when asked by a financial advisor or when completing account paperwork. Sometimes, they don’t want to “bother” their attorney with questions about their accounts, which people often think of as separate from their estate plan. It is routine and expected for a life insurance agent or retirement account professional to ask for beneficiary designations, but it is also a common option now for brokerage and bank accounts. Clients often think they “named the same beneficiaries” on all of their accounts, but when documentation is obtained and reviewed, the beneficiaries designated often undermine their estate planning intentions.
It is always a good idea to consult with your various professionals – you lawyer, financial advisor, and insurance broker – to confirm that you have named beneficiaries where necessary, and that these designations are carefully considered to effectuate your estate plan.