Part of a comprehensive estate plan is coordinating your account beneficiary designations with your will, trusts, gifting and other estate planning techniques. In other words, when you do your 2020 estate plan checkup, you and your attorney should sit down and look comprehensively at the wider picture of your wealth that includes life insurance, annuity and retirement account beneficiaries that you have designated.
Account payout without probate
Generally, the transfer of money payouts from these accounts to named beneficiaries happens outside of a probate court proceeding to certify your will or to determine your heirs through state intestate succession laws that apply when you die without a will. The ease of transfer without a court process is part of why these accounts are attractive. But you should make sure the money that transfers to named beneficiaries this way goes where you want it to.
For example, if a named beneficiary has died and you have not named a successor beneficiary, the proceeds from the account are likely to go to your estate, where the court will order it distributed through the probate process.
Events that should trigger reconsideration of beneficiaries
It is easy to overlook beneficiary updating, but when a major life event occurs, it might mean you will want to consider changing who the recipients of your account proceeds will be. Examples of events (impacting you, your potential beneficiaries or your family) that should trigger beneficiary review are:
- Disability or incompetence
- Change of employment
- Relationship problems like estrangement
- Beneficiary problems like high debt, substance abuse, gambling or shopping addiction
- Distrust of a new spouse or a child of a beneficiary
- And others
Part of the overall plan
Looking at beneficiary designations is important to be sure not only that they are up to date according to your current wishes, but also that they make sense considering your overall estate plan. For example, you might leave life insurance proceeds to one of your children as the named beneficiary, but for your other child, you prefer to put money into a special needs trust because they have disabilities that require you to protect their eligibility for government benefits.
This is only an introduction to a potentially complex topic, depending on your circumstances. Discuss the details with an experienced estate planning attorney.