Some people in Kansas City have written very detailed wills spelling out exactly what assets they want to hand down to their chosen heirs. These transactions are known as bequests. However, these same people may also have retirement accounts or other financial accounts, in which someone is listed as a beneficiary. For estate planning purposes, it is important to understand what the difference is between a bequest to an heir and a beneficiary designation and how these designations might affect one another.
It happens all the time. A person has a will that might seem to be airtight, but in fact does not do what it proposes to do after his or her death. Why? The assets of the deceased are actually located in accounts with beneficiary designations. These beneficiary designations trump what may be stated in a will.
There are many types of financial accounts that could have a beneficiary listed in them. Retirement accounts, stocks and bonds, bank accounts and life insurance policies are only a few examples of the types of financial accounts that could have a beneficiary named to them. The positive side of these accounts is that once the account holder passes away, the funds in the account skip probate and go straight to the beneficiary. However, this also means that they take precedence over what may be stated in a will, which is probated.
This can become problematic if a person did not take care to regularly update the beneficiaries on their financial accounts. After all, no one wants their assets to go to an ex-spouse or some other unintended beneficiary when they pass away. However, by carefully reviewing all accounts and your will on a regular basis you can ensure your assets will be handed down in the way you intend them to be.
Source: Cary Citizen, “Money Matters: Bequest or Beneficiary – In Estate Planning, the Difference Is Crucial,” Briant Sikorski, Oct. 26, 2016