Many people designate a number of their accounts to “transfer on death” (TOD) to their chosen beneficiaries. On some types of accounts, like retirement accounts, a beneficiary designation does the same thing. You simply name one or more people to be beneficiaries of the account after you pass away.
Designating beneficiaries through either of these methods can allow the assets to bypass probate, making things easier and less expensive for your loved ones. However, there are some important things to keep in mind when you do this.
These designations take precedence over a will
It’s a common misconception that your will and other estate planning documents wholly dictate the distribution of your assets. While that’s true in most cases, a TOD or beneficiary designation supersedes what’s in an estate plan. Therefore, make sure that your will matches your account beneficiary designations. If it doesn’t, then you might have loved ones battling it out in court or simply not knowing what you intended. Often, people who try to simplify things for their families end up complicating them.
People often make modifications to their estate plan and forget to contact their financial institution, investment management company or retirement plan administrator. That’s how money ends up getting left to ex-spouses, deceased siblings and estranged children.
Make sure your investment account beneficiaries know how to manage these accounts
You may feel comfortable playing the stock market and enjoy moving your investment account money when an attractive new initial public offering (IPO) becomes available. Not everyone feels the same way. Make sure that the person that you leave an investment account to can manage it. You don’t want it to cause someone undue stress or perhaps tempt them to make some unwise, unresearched transactions.
An experienced estate planning attorney can help you avoid these and other mistakes that well-intentioned people make when trying to ensure their loved ones are cared for after they’re gone. Thoughtful estate planning can also give you peace of mind.