Be Careful If You Have a Will and Designate Beneficiaries on Financial Accounts

Many people do not realize that a Last Will and Testament only applies to assets and property that has not already been spoken for. What that means is that if you have a bank account, for instance, which names one child as a beneficiary (and you have 2 other children), that determines who gets the balance in that account at your passing. The language in the beneficiary designation in a financial account will override any distribution directions you may have given in your Last Will and Testament. The same principle applies if accounts are titled jointly or as tenants by entireties. Ownership of those accounts at your passing will be determined by who survives you. A specific beneficiary designation is not necessary.

What can you do?  There is certainly a convenience factor in using financial institution beneficiary designations and, as a practical matter, if you have no other assets outside of the financial institution, a will is not even necessary.  However, that is rarely the case. Thus, the solution is to make sure that your beneficiary designations with financial institutions match the wishes you have set forth in your will. An even easier way to solve the potential problem is to either leave the beneficiary designations blank on bank, etc., forms or to designate your estate as the beneficiary of your accounts.

Leaving your estate as the beneficiary can create problems of its own, however, if your estate is substantial. You would incur probate fees and potential tax consequences. Therefore, it is always a good idea to review your wishes with an attorney who can make sure that your documents are drafted properly and that your beneficiary designations are consistent with your Last Will and Testament wishes.