As uncomfortable as it is to consider, death is an inevitable part of life for us all. However, many people choose not to be proactive in planning for this event, especially as it relates to their finances and estate. Estate planning can save your loved ones money, time, and stress, especially as they grapple with the emotional impact of losing you.
Professionals can help you put together a last will and testament that details your final wishes, but there are other things to consider too—namely, beneficiary designations. Many people find themselves wondering, “Does a will override a beneficiary designation?”
Make sure that you are prepared for what comes next and set your family up for success with the details found here to make your estate planning smoother.
What is a Beneficiary Designation?
Planning for your passing is paramount to ensure that your assets get divided up exactly as you pictured it. If you know who you want to inherit certain aspects of your estate, then you will need to make a beneficiary designation.
But what exactly is a beneficiary designation and what does it do for your estate planning?
Beneficiary designations are simple to make as part of a will or on your life insurance policy. They can also apply to any remaining balances in your retirement savings accounts. Once you name a person who will receive an asset, it is transferred to them upon your passing. While this type of designation may not mean that they can skip out on probate court, it keeps inheritance simple.
Of course, there are other ways to ensure that your loved ones receive what you want to give. A beneficiary designation can place assets within the estate that are then split up according to a will.
What is a Will?
Before we get too far into the weeds, it is also important to make sure you understand what a will is and how it functions. A last will and testament is a formal legal document that details how you want your property, cash, and assets to be split up among your loved ones (or charity) upon your death.
Without clear documentation in the form of a will, it can be challenging for your family to figure out what you meant for them to do with your estate. Without a will, it may turn out that your exact wishes are not carried out effectively. If they are, it may require more time and effort for your survivors who are already grieving and overwhelmed with loss.
Furthermore, not having a will could pose significant problems. It could mean that your estate will end up coming before a judge or state official to settle what should be done with what was always intended to be your family’s inheritance.
Does a Will Override a Beneficiary Designation?
What would happen if you have designated beneficiaries on some accounts and a will that has other beneficiaries listed for specific assets?
For the most part, a designated beneficiary will take precedence over a will. Policies such as life insurance or other financial institutions are going to pay out to the person listed on the account without consulting a will. It may even be that the will contradicts the designated beneficiary, but it might not matter.
This is the time to ensure that designated beneficiaries align with the stipulations outlined in the will. If not, it could delay the process of closing out your estate and could cause rifts among your family over who should have received specific assets.
The best thing you can do to simplify things for your survivors is simply to list the estate as your go-to beneficiary. From here, you can name who will receive what in a last will and testament so that all gifts are bestowed in one place without confusing contradictions. Be careful though, you would not want to make the estate a beneficiary of a qualified plan like a 401k or an IRA because all the income taxes would be due immediately upon death at the estate’s rate–which is terribly high. Likewise, tax-deferred investments like annuities should be carefully considered to avoid a similar result.
3 Common Mistakes and How to Avoid Them
If you are ready to start planning for a future where you are no longer around, it is past time to put together a will and name your designated beneficiaries. Make sure your estate documents will work in alignment with your wishes by avoiding some of these mistakes.
No Updates After Life Events
Have you recently gotten married? Divorced? Had a baby? Major life events often call inheritance scenarios into question. You may want to switch your beneficiary from parents or siblings to a spouse or even a child, setting them up for a brighter future even if you are no longer around.
Every time a major life event takes place, you should take time to review your beneficiaries and estate documents.
Assuming a Will Covers All Assets
Many people think that simply having a will means that their estate is completely taken care of if and when they pass away. The problem is that you may have to be extremely specific with how a will is written and where you want each asset to go.
Thorough estate planning will include much more than just a will, such as trusts, power of attorney, and advance directives. Understanding the difference between estate planning and writing a will is crucial to managing your assets. Working with a professional can help you create and manage these pieces and make sure all your assets are accounted for.
Failure to Communicate
Nobody relishes talking about death and what happens afterward. One of the biggest problems that can make closing out your estate difficult is a lack of clear communication of your plans. Your family should know exactly what your estate plans are, especially anyone that you might name as the executor.
Be upfront and frank about what you want to happen upon your passing. In official documentation, use clear and straightforward language written with the help of a professional. This will leave less room for interpretation and potential conflict down the road. We’ve seen many do-it-yourself wills or wills off the internet, and more often than not these end up costing much more to correct at the probate level than a trust would have cost initially.
Start Your Estate Plan with Magellan
When you feel ready to tackle your estate planning, Magellan is here to help. We provide estate, financial, legal, and tax planning services so that you can get everything you need under one roof. Instead of working with disjointed advisors and attorneys across different firms, our comprehensive, holistic approach means we can provide a seamless experience, avoid gaps in planning, and efficiently work toward reaching your goals.
If our one-stop shop approach sounds appealing to you, reach out to us today to learn more and get started!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.