True or false? Your will controls who inherits all of your assets upon your death.

You may be surprised to learn the correct answer is false when it comes to certain assets that have a beneficiary designation. In those cases, the beneficiary designation takes precedence.

A primary beneficiary is an individual or entity that you assign to receive the proceeds from a financial account or arrangement upon your death. A contingent beneficiary is the next person to receive the assets should the primary beneficiary pass away. A beneficiary designation is considered a contractual agreement that even a will cannot override.

For life insurance policies, retirement accounts (i.e., 401ks/403bs, IRAs, etc.), Health Savings Accounts (HSAs), and trusts, the beneficiary you name inherits the account assets, generally regardless of what your will states.

For checking or savings accounts, or CDs, you may name a payable on death (POD) beneficiary. For an investment account, you may name a transfer on death (TOD) beneficiary. When you pass away, the beneficiary can simply access the money (to make it easier to cover funeral expenses and such) and bypass probate.

What if you don’t name a beneficiary when one may be named, or one is named but passes away before you do? For a life insurance policy or an IRA – Roth or traditional, the account balance becomes part of your estate and is subject to probate. Similarly, when a beneficiary is named for a POD or TOD account and that individual passes away before you, assets will revert to your estate, negating the primary purpose of such accounts – to bypass probate.

The situation becomes more complex if the beneficiary of your estate is a minor (who can’t claim assets until age 18) or an individual with special needs (who may lose eligibility for government benefits after receiving an inheritance). In such situations, trust may be a solution.

Just as it’s important to review your estate plan annually to ensure your financial legacy is carried out according to your wishes, it’s also important to regularly review beneficiary designations. Situations that may warrant a change in beneficiaries include major life events such as marriage, divorce, the birth of a child, the death of a previously named beneficiary, or a significant change in financial status.

If you overlook this responsibility, assets may not get distributed according to your wishes at the time of your passing. There are numerous stories about ex-spouses being life insurance beneficiaries or the youngest child being the only child not named on an account because beneficiary designations were never updated. If you don’t have children or a spouse, failing to name beneficiaries or not having a will means that state laws govern to whom your assets go.

To ensure your financial legacy is carried out the way you want, be sure to review your beneficiary designations – and overall estate plan – annually. If you need assistance, have questions, or want to schedule an estate planning consultation with RBT CPAs, email irahilly@rbtcpas.com or call 845-567-9000 and ask for Ita. You’ll see why you and RBT CPAs can be Remarkably Better Together. RBT CPAs is also available to handle your accounting, tax, audit, and business advisory needs. Give us a call today.

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.