Navigating the waters of estate planning can often bring up questions about the role of wills and beneficiary designations. A common point of confusion is why one might need to designate beneficiaries when heirs are already named in a will. Let’s clear up the differences and understand why both are critical components of a well-structured estate plan.
The Role of a Will
Your will is a legal document that communicates your wishes regarding the distribution of your assets, appoints your Personal Representative and if applicable, appoints a Guardian for the care of any minor children upon your death. It becomes active only after you pass away and after it is admitted to probate.
In your will, you name your heirs and outline how you wish your assets to be distributed among them.
Beneficiary Designations: Most Common Characters in Probate Avoidance
Beneficiary designations, on the other hand, are typically used with accounts that are designed to pass outside of the will. These include:
- Retirement accounts like IRAs and 401(k)s
- Life insurance policies
- Payable-on-death [POD] or transfer-on-death [TOD] accounts
With these types of accounts, the assets go directly to the named beneficiaries upon your death without going through probate. This means they are paid out more quickly than the assets passing through your will, and the process is also private, unlike the probate process which is a public proceeding.
IMPORTANT NOTE: Direct Beneficiary Designations Supersede the Will: It’s crucial to understand that a beneficiary designation will generally supersede what is written in your will. If your will states one thing but your beneficiary designation says another, the asset will go to the named beneficiary on the account.
Why Both Are Important
Here’s why having both is not just a matter of redundancy, but a part of strategic estate planning:
Non-Probate Assets: Beneficiary designations are necessary for the assets mentioned above
because they are designed to bypass the will and probate entirely.
Updating Your Estate Plan: Life changes such as marriage, divorce, births, and deaths can affect your intended asset distribution. Beneficiary designations need to be updated in these events, just like your will.
Speed and Simplicity: The transfer of non-probate assets to beneficiaries is swift and avoids the potentially lengthy probate process.
Contingencies: If an heir named in your will predeceases you and you haven’t updated your will, having a named beneficiary on your accounts can ensure that your assets still pass according to your wishes.
The Bottom Line
To ensure your estate plan works as intended, it’s vital to have both a will and up-to-date beneficiary designations. This approach provides a comprehensive plan for all your assets and can alleviate stress and confusion for your loved ones during a difficult time.
Remember, estate planning is an ongoing process. Regular reviews and updates are key to maintaining an estate plan that reflects your current wishes and circumstances.
Have more questions? Need to review your estate plan or beneficiary designations? Call Heidi today to schedule a consultation, and let’s ensure your estate plan is thorough and effective.
Heidi S. Webb, Attorney at Law, serves clients in Daytona Beach, Ormond Beach, Port Orange, and beyond with matters of Estate Planning and Probate. Contact her today to schedule a free consultation. Visit her page on Facebook, or see what her clients are saying to learn more about Heidi.