How Beneficiary Designations Affect Your Estate Plan

When you set up an estate plan for the financial security of your loved ones after you pass away, a will and a trust are the primary legal documents that can provide for distribution of your estate. It is also essential to account for financial assets that have beneficiary designations. Those assets can make a substantial difference in property distribution among your beneficiaries, as well as in settlement of your estate.

Methods of Property Distribution in an Estate

When you make an estate plan, a will and a trust are the legal documents through which you can provide for your loved ones after your death. A will can be used to distribute property directly to beneficiaries, while establishing and funding a trust provides a more flexible means of controlling distribution to achieve specific estate planning goals. While most estate plans include a will, only some plans include a trust. Your estate planning attorney helps you determine the best documents for your estate plan, based on your overall goals.

In addition to a will and trust, many individuals have financial assets that include beneficiary designations. Examples of assets with beneficiary designations include:

• Life insurance policy
• Retirement account, including IRA and 401k accounts
• Annuity
• Financial account with POD (payable on demand) or TOD (transfer on demand) designation
• Arizona beneficiary deed

When you designate a beneficiary in this type of financial asset, the beneficiary receives the property in full on your death. The asset does not go through your estate and does not go through the probate process, which is one of the advantages of this type of property.

When you set up property distribution in your estate plan, it is important to take any assets with beneficiary designations into account. If you do not consider property with beneficiary designations, the distribution of your estate might not be consistent with your overall wishes.

How Beneficiary Designations Affect an Estate

If you distribute property through a beneficiary designation, that property does not become part of your estate and does not go through probate. The asset goes directly to the beneficiary. As such, a beneficiary designation can override the terms of your will or trust and result in an overall distribution that is not consistent with your wishes.

As an example: If your will or trust provides for equal distribution of your estate among your three adult children, but you then designate only one of the children as the beneficiary of a life insurance policy, the ultimate distribution of assets will not be equal. The life insurance proceeds go directly to the named beneficiary and do not become part of the estate that is equally divided. The beneficiary designation effectively overrides the terms of the will or trust.

Beneficiary Designations in Your Estate Plan

There are several steps to take in order to ensure that beneficiary designations do not result in property distributions inconsistent with your goals. First, when you make an estate plan, be sure to tell your attorney about all assets and property you own that have beneficiary designations. Your attorney will make certain that those assets do not alter your desired distribution in your estate plan and that your beneficiary designations align with the overall goals of your estate plan. Maintaining that consistency ensures that you avoid unintentional inequities or disputes among your beneficiaries.

In addition, after your estate plan is in place, if you change any beneficiary designations or acquire new assets that have a beneficiary designation, you should reach out to your estate planning attorney and make any necessary revisions in your estate plan.

Finally, it is critical to review and update all your beneficiary designations on a regular basis. Major life events, like marriage, divorce, and birth of a child, can lead to unintended consequences if beneficiary designations are not updated. At the same time, you should review your entire estate plan with your attorney to determine if it needs to be updated.

Schedule a Free Consultation With an Experienced East Valley Estate Planning Attorney

At Peterson Law Offices, our estate planning practice includes assisting with property distribution through beneficiary designations. There is no charge for your initial consultation with us. We provide top-quality services at affordable prices and welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.