CAUTION! Your Beneficiary Designations on Bank Accounts, Life Insurance, and Other Assets May Defeat the Goals of Your Last Will or Trust
Do you own funds ($$$) held in joint accounts or property where you have a named beneficiary?
If your answer is “yes” these accounts and property will not be distributed in accordance with your Last Will. Instead, all jointly owned property and accounts will pass to the surviving joint owner, and all assets with a beneficiary designation will pass to that beneficiary.
If you have any joint accounts with one or more of your children, the funds in that account will pass to that child(ren) at your death, regardless of what your Will might say, unless the account was set up as a convenience account whereupon it will be distributed according to your Last Will. You should carefully review the ownership and beneficiary designation(s) of all of your investments and funds to be sure that they will be distributed to the people you intend at your death.
Are the designated beneficiaries under your Last Will correct? Designated beneficiaries are the people (heirs) who receive the balance of your estate after (i) all the debts, expenses and taxes of the estate have been paid, (ii) any specific bequests have been distributed, and (iii) joint accounts or any assets with beneficiary designations have been distributed to the named joint account holders. You should review your estate planning documents, especially your Last Will carefully to confirm your beneficiaries are accurate. If one of the beneficiaries were to predecease you, does that beneficiary’s share pass to his or her children (your grandchildren), your other children, or otherwise? This is a very important point to discuss with your estate planning attorney.
Failure to Correctly Designate Beneficiaries Can Defeat Your Entire Estate Plan
Why Title your Assets and Property Matter When Creating Your New Jersey Estate Plan
Divorce and Estate Planning: The Importance of Correctly Naming Beneficiary Designation
The Story of a Real-Life Disaster Caused by Not Focusing on Correct Beneficiary Designations
Several years ago, I reviewed a Last Will & Testament of a husband who had died leaving a 401k. This was a second marriage for the husband, who had two estranged sons from his first marriage. While single following his divorce, he changed the beneficiaries of his life insurance and 401k to his sons when their relationship was good.
After his second marriage, the husband and his new wife bought a home together. They asked the real estate attorney who handled the purchase to also draft for them a new will. The husband listed the assets he wanted to leave to his sons and which assets were to go to his wife. He wanted his 401k to go to his wife. Unfortunately, the attorney didn’t understand the difference between probate and non-probate assets. She wrote the will stating that the husband intended to give his 401k to his wife, but the attorney didn’t realize that the will would have no legal effect because the beneficiary designations on file with the custodian of the 401k plan listed the sons from the first marriage.
When the husband died, the wife received a big surprise when she was told that she had no interest in the $500,000 401(k). Why? Because a will doesn’t control the distribution of any of your assets with a beneficiary designation that does not name your estate. Property such as life insurance, annuities, brokerage accounts, and retirement accounts pass to the person you have designated as a beneficiary with the life insurance, annuity company or retirement account custodian(s). Other types of property that pass by operation of law include jointly owned accounts with a right of survivorship, and real estate and bank accounts jointly owned by two or more people. When the first owner of a joint account dies, the property automatically passes to the surviving co-owner(s). It is irrelevant what the Last Will says.
That is what happened here. The 401k passed to the named beneficiary (his estranged sons) according to the beneficiary designation form on file, not by the terms of the will. The wife tried unsuccessfully to get a court order directing the funds to be paid to her. She lost.
The takeaway from this advice is that although many people think drafting a will is simple and often undertake to do it by way of a “will kit” with legal zoom or some other legal stationery company, or ask an attorney to do a “simple will”, they may lose out big when their estate goes to someone other than their intended loved one.
The use of a properly written New Jersey will is a very good estate planning tool, but the beneficiary designations to your assets must reinforce and not conflict with your estate planning objectives.
Not sure if your will, trust or beneficiary designations are correct? If you have any questions concerning this subject, contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291, or firstname.lastname@example.org. He is happy to answer your inquiries.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Last Wills Attorney