Why Designated Beneficiaries are Important in Estate Planning


When it comes to the practice of estate planning, designated beneficiaries are an important part of ensuring your loved ones are taken care of after your death. In the broadest sense, a beneficiary is a person who receives a profit, advantage, or benefit. Following a death, a designated beneficiary will typically receive some form of payout directly, without having to go through the probate process. Though you may think your will or trust will override all other designations to control how money will be distributed after death, this is not always the case. Once beneficiary designations are put into place on a specific account, then the contract provisions specifying ownership and distribution after death will control.

There are a variety of financial accounts providing options on ownership and transfer after death. Some forms of account agreements will take precedence over a valid Will. Others will not. On the formation of a new account, you should investigate and make an informed decision to be sure that the form of the account agreement matches up with your desired distribution plan. In particular, you must exercise caution when designating beneficiaries on pensions, brokerage accounts, retirement accounts, and life insurance.

Better Understanding the Role of Wills and Trusts with a Beneficiary

 A valid will specifically stating your desires for the transfer of assets after death is the centerpiece of any good estate plan. Failing to plan and execute a valid Will means that you have given up control over the disposition of assets after your death. Dying without a Will means that your assets will generally pass according to the laws of intestate succession (aka the state’s intestacy rules). However, even without a will, you can still direct the ownership of certain accounts and contracts after your death by using written beneficiary designations. You may not realize it, but banks lock accounts when they receive notice of a person’s death. When access to money is an issue, it can make an extremely emotional time for your family even more difficult.

If you plan ahead and provide beneficiary designations for one or more accounts, this guarantees that your designated person can access funds upon presenting a death certificate to the bank or other institution. This also allows for a relatively quick and efficient way to ensure that your family has access to money to pay for your burial expenses and for legal counsel at a time when they may still be grieving. Beneficiary designations allow financial institutions to distribute assets to designated beneficiaries without the assets becoming a part of the probate estate. When used properly, beneficiary designations can effectively remove assets from the administration process and make managing your estate following your death much simpler for your loved ones.

Updating Beneficiaries

Estate plans should be reviewed every three to five years to ensure that the appointments, beneficiary designations, and dispositive provisions are up to date and in keeping with your then current wishes. In the event your review identifies that a beneficiary designation as listed on an account is not appropriate, the designation should be updated immediately. Often, it is the significant life events, whether it is a divorce, a death in the family, the creation of a trust, the birth of a child or similar changes that bring with them the need to update your existing beneficiary designations.

Texas Estate Planning Attorneys

Estate planning is an important task because you are planning for the future of your personal and professional assets, as well as for the financial stability of your family. At MehaffyWeber, we work to develop a comprehensive estate analysis for each client, helping families navigate complex areas of estate and tax planning. If you are in need of estate planning guidance, contact the experienced attorneys at MehaffyWeber today.