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Be sure beneficiaries are correct for assets that transfer on death

On Behalf of | Jun 5, 2020 | Estate Administration & Probate |

Your estate plan may use a variety of documents like a will or trust to transfer property to others or for the benefit of others during your life or at death. One way that assets can transfer is through a beneficiary designation on particular kinds of accounts or instruments that pay out to your beneficiary upon your death. These assets are called pay-on-death or transfer-on-death accounts.

Examples of assets that may pass through beneficiary designation include:

  • Brokerage accounts
  • Retirement accounts like pensions, 401(k)s, individual retirement accounts (IRAs), Roth IRAs
  • Checking and savings accounts
  • Mutual funds
  • Annuities
  • Life insurance
  • Accidental death and dismemberment (AD&D) insurance
  • And others

When one of these accounts has a properly named beneficiary, it passes to the beneficiary at the owner’s death outside of any probate proceedings. Should there be no beneficiary named or if the beneficiary and any successor beneficiary has died, the assets in the account will instead become part of the deceased owner’s estate. As such, it would pass according to any valid will executed by the owner or if there is no will, through intestate succession, a process in probate court that passes estate assets to relatives designated by state law.

This means that you should carefully choose beneficiaries if your goal is to avoid the probate process. When establishing or reviewing a comprehensive estate plan, taking a second look at all accounts or instruments that pass via beneficiary should be part of it. You should coordinate the passing of various assets to designated people via various vehicles you can use to do so. For example, you might leave your life insurance proceeds to one child via a beneficiary designation and set up a special needs trust for a child with disabilities.

Reviewing beneficiary designations is also important whenever a major life event happens. For example, in a divorce you would likely want to remove your ex-spouse, or if a beneficiary dies (and you have not named a successor beneficiary) or becomes incapacitated, you normally would name someone else.

An attorney can provide direction and advice about beneficiary designations as part of an overall estate plan.