When developing your estate plan, list your beneficiaries wisely. In some common estates, overlooking the fact that a beneficiary listed on an asset supersedes a beneficiary listed in a will causes problems with beneficiaries and what they inherit. Because assets with a designated beneficiary goes to the beneficiary, the property is not part of the estate. Conversely, if a beneficiary is to receive property through the will, the property must go through probate. Moreover, if the executor sold estate assets to cover expenses, the beneficiary receives a reduced amount or nothing at all. So, to avoid problems with beneficiaries, list your beneficiaries wisely.

List Your Beneficiaries on all Your Retirement Plans

When it comes to retirement plans, designate beneficiaries on all your retirement plans. Otherwise, at death, you will leave the retirement plans open to estate income taxes and your executor in a quandary as described in the article Inherited Traditional IRA | Distribution Rules for Estate as Beneficiary. So, regardless of your estate plan strategy, designate primary and secondary beneficiaries for all retirement plans. Also, do the same for life insurance policies and annuities.

List Your Beneficiaries for a Probate Avoidance Strategy

In your estate plan, if employing a probate avoidance strategy, list your beneficiaries on as many assets allowable. In the article Tips to Avoid Probate in Your Estate Plan, there are methods to designate beneficiaries on accounts outside of retirement plans. However, careful planning is necessary to use a probate avoidance strategy. To ensure the executor has the assets to cover expenses of the estate, you must set aside assets for the executor as described in the article Commit Enough Assets to Cover Expenses in Your Estate Plan. Otherwise, you will leave your executor in a stressful situation.

Also, a little planning is necessary for listing beneficiaries in a probate avoidance strategy. For the assets used in covering expenses of the estate, designate only the executor as the beneficiary for those assets. The remaining assets can have primary and secondary beneficiaries listed.

List Your Beneficiaries for an Indebted Estate

If you have a lot of debt in your estate, you may want to list your beneficiaries in the will. In this instance, using protections provided by the probate court could be beneficial as described in the article When Probate is Beneficial to an Estate. In the end, listed beneficiaries in the will receive the remaining estate property, if any.  Typically, in this type of estate, beneficiaries don’t expect to receive much or anything at all. Therefore, very few problems arise with the beneficiaries.

Conclusion

There are many reasons to list a beneficiary on an asset or in a will. However, it’s more important to understand that a beneficiary listed on an asset overrides a beneficiary listed in a will. With this rule in mind, listing beneficiaries becomes an exercise of common sense.

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