The Role of Beneficiary Designations in Your Estate Plan

Many assets lend themselves to transfer by beneficiary designation. A beneficiary designation is a legal designation of someone to receive your property upon your death. It’s like a contract between you and your bank or between you and your brokerage firm. The contract essentially says: “If I die and someone brings you my death certificate, distribute my account to the people I have named as my beneficiaries.”

It is important to remember that your beneficiary designations will “trump” whatever your will or trust says about the distribution of the designated asset. Accordingly, if you have a will that says “give the balance of my savings account to my children” but you have designated your spouse as the payable-on-death beneficiary of the account, the beneficiary designation will supersede the provisions of the will and the account balance will pass to your surviving spouse at your death, not to your children.

A beneficiary designation can be a very useful way to transfer assets to your heirs without probate. But it is important to understand how your beneficiary designation works. If you choose to use beneficiary designations to transfer bank or brokerage accounts, be sure to read the fine print on your beneficiary designation forms so that you are sure your assets will pass to whom you want, the way you want.