With Estates, It’s the Beneficiary vs. the Will

The passing of my Mom and Dad has prompted my thinking on estate planning.  A broker had pressed me to assign a beneficiary for my account though I really didn't want to do that.  A family member who is an attorney responded to this and set the record straight for me.

I am not an attorney or licensed financial advisor, so please check and verify with a professional.  Here's what I learned:

Beneficiaries Trump a Will

No, not that Trump!  I'm referring to trump as in duplicate bridge or other card games.  A beneficiary on a financial account will take precedence over a will.

You may have designated your stock portfolio to benefit shelter puppies, but if a person is listed as Beneficiary, those puppies are out of luck.  That person may give to help the puppies but is under no obligation.

A Beneficiary Is Not Required

Financial institutions like banks and investment firms prefer a beneficiary because it saves them from dealing with probate.  But the probate court will likely acknowledge and approve the Last Will and Testament if properly prepared with an attorney, a Personal Representative is appointed, and you don't include screwy things be done with your assets after you die.  A beneficiary is not required on any account.  If the bank or broker insists on one, just kindly decline or maybe consider moving the money.

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Must List All Beneficiaries on an Account

If you have four children you want to receive a portion of an account or life insurance policy, then all four must be listed.  If you list only the oldest child thinking that will cover all four, that is a terrible assumption.  The financial business recognizes only that beneficiary and will cut the check for only that person.  And that beneficiary may decide to keep the whole amount and has no legal obligation to share with the siblings or other family members.  That will make for an interesting Thanksgiving dinner.

A Beneficiary Will Receive the Funds, Regardless of Age

Did you list a minor as Beneficiary?  Are you cool with them having all that money to play around with?  Financial firms do not have a record of a beneficiary's age, and they probably don't care.  They will give the funds to whoever is listed, assuming that is your wish.  Is that truly your wish?  If not, and you want the funds in a trust for minors, then don't list them as beneficiaries.

Should You List a Beneficiary?

It really depends on the people the money is intended for.  If they are responsible adults you trust to be good stewards of the capital, then you can list them as beneficiaries.  It is your option.  But if you have concerns about your heirs, such as age or behaviors, then maybe the better course is to consult with an attorney or estate planner who can guide you and protect what you have worked hard for.

Estate Planning takes a lot of information and a lot of thinking.  It's an effort worth the time.