If Wills worked as they do in movies, anything written in them would be interpreted as final and immutable. A loved one could dig up a Will you’d written on a napkin, declare its discovery, and all your last wishes would be fulfilled. Hunky-dory, happy story, the end.
Unfortunately, in real life Wills are neither so simple nor so indisputable. Some designations even trump those made in your Will and so it is important that all of your estate planning documents are both up-to-date and in line with one another.
This is especially true where retirement accounts, IRAs, annuities, and life insurance policies are concerned. Beneficiary designations made in these documents override those made in your Will, so no matter how meticulous you are in drafting the latter, your wishes won’t be fulfilled if the same attention to detail isn’t paid to the former.
Beneficiary Designations Basics: What You Need to Know
Knowing that beneficiary designation on retirement accounts and the like override those made in Wills is crucial but that’s only part of the story. Readers should also be aware of the following:
1. The Need for Beneficiaries, Generally
If you designate no beneficiary on relevant accounts, assets pass to your estate. Their distribution then becomes an issue to be resolved in probate court, which implies a lengthy and expensive legal process. Not only do loved ones suffer this burden, but its outcome may not even align with your wishes.
2. The Need for Contingencies
Just as important as designating beneficiaries is designating contingent beneficiaries. Spouses, for instance, often name one another to their respective accounts. If they neglect to name contingencies, however, and something happens to them, their children may need to endure probate court to gain access to their assets.
3. The Importance of Professional Counsel
Beneficiary designations need to be specific if they are to serve their purpose. This is especially true in cases of blended families where what you call your loved ones may not align with the legal definition. Many states, for instance, distinguish between step-children and biological children even if you may not. If your children have families of their own, the need for specificity is even more important. Professional counsel is key to ensuring beneficiary designations square with legal definitions. An experienced estate planning attorney is your best resource in this regard.
4. The Value of a Trust
Many people hold the false belief that the executor of their estate carries the ability to exercise discretion when distributing their assets but this is not true. An executor’s role is simply to carry out your wishes as described in your estate plan.
If, for instance, your 15-year-old son is designated as the beneficiary of your 401k plan, that money passes directly to them no matter what the executor of your estate may have to say about it.
To prevent loved ones from coming into an inheritance they are not, for whatever reason, prepared to manage, you can name a trust as the beneficiary of an account and your loved one as the beneficiary of the trust. This allows you to restrict how and when assets are used and to name a trustee to ensure your wishes are respected.
To learn more about Wills and beneficiary designations or to address any other matter related to estate planning, do not hesitate to reach out to the Deliberato Law Center today either by calling us at (216) 341-3413 or using the contact form on our website.
Contact the Estate Planning Attorneys at Deliberato Law Center