Your estate plan vs. your beneficiary designations

On Behalf of | Nov 17, 2020 | Estate Planning |

Your estate plan is, in your mind, the final word on what should happen to all the assets that you own. It gives you the power to divide your estate between your heirs and other beneficiaries. Doing that the way you want to do it is very important to you.

However, you also have some accounts with beneficiary designations. These could include retirement accounts, life insurance policies and even some bank accounts. If the designations are different than the estate plan, which side wins out?

The designations carry more weight

Contrary to what many people believe, your estate plan is not going to be honored in a situation like this. The beneficiary designations come first, and therefore, carry more weight.

For instance, imagine that you have a life insurance policy naming only one child as the beneficiary. You actually have three children, however. Your estate plan says that once the money from the policy pays out into your estate, it should get split three ways.

Here’s the problem: It’s never going to pay out into your estate. As soon as you pass away, the life insurance company follows the designation and pays the one child who was named.

When this happens, the money becomes your child’s money, not yours. No matter what you write in your estate plan, it cannot dictate what should be done with someone else’s money. The other children only get a cut if their sibling agrees to give it to them.

Making them match

This example shows you why it’s so important for both areas to match. Be sure you know exactly what steps to take.


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