Should I have a Will and Beneficiary Designations?


Should I have a Will and Beneficiary Designations?

There’s this idea amongst people, and particularly financial advisors, that if you have a financial account and you put a beneficiary designation on the account, this is all you need to do. When you pass away, you would be leaving the account to a loved one if you put a beneficiary designation on your account.

Many people are confused by this, because they think that if they do a Will, that it’s going supersede the beneficiary designations, but the opposite is true. The beneficiary designation supersedes the Will. The first estate I was involved with over a decade ago, was for someone who passed away by suicide. They had done their own online Will prior to ultimately taking their own life. The Will stated that they wanted the life insurance money to go to sister A. However, on file with a life insurance company was a beneficiary designation done before the Will.  It was instructed that the life insurance money should go to sister B. This person clearly wanted the money to go to sister A, but sister B got the money. People think that if they do a Will and they have beneficiary designations on their accounts, that this covers everything, but it doesn’t.

A Beneficiary Designation Is Not The Only Tool To Use

The fundamental problem is so many financial advisors suggest putting beneficiary designations on everything. While it’s important, beneficiary designations only answer one question if you pass away, and that is who gets the money. Relying too heavily on beneficiary designations means you’re giving up the opportunity to plan for all eventualities. This is why beneficiary designations cannot be the only tool you use in an estate plan.

When we write an estate plan for somebody, the estate plan can be 20 to 40 pages long, and some trusts are even longer. We’re not writing 30 pages of details of what you will give to your kids – there is so much more involved. This is because while it’s important, we don’t want to just answer the question of who gets the stuff when you pass away. When done properly, estate planning is about honoring your life, having a good retirement and not going broke. If there are leftovers when you pass away, the money can be distributed to your loved ones. 

Do You Have Kids?

If you’ve got minor children or minor grandchildren who stand to inherit from you, I urge caution in leaving money to minors. If you’re not intending to leave money for your minor grandchildren, but your kid dies before you, what would likely happen is the money will go to your grandkids, regardless of their age. 

Most people are of the opinion that we shouldn’t even consider leaving money to 18 year olds. I’m a big proponent of life insurance. I have kids and I pay a fortune for life insurance. It doesn’t mean but I can just give the money to my kids. As a parent, I try to teach my kids morals and values so that they grow up to be good people. Giving an 18 year old a lot of money, will not improve their life, but will more than likely destroy it. Even at 21, kids are not necessarily mature or responsible enough to receive an inheritance.

Most kids only get their inheritance at age 25 or even at 30. However, the law will give minors control at either 18 or 21 which is a mistake. Please be careful about using beneficiary designations when young people may inherit. It is a good idea to manage that money with an estate planning vehicle. A trust for example can provide access to the money for children until they reach 30 years old. There needs to be a responsible adult who has a pen to the check book.

Look out for the blogs over the course of the next week, for more information on Beneficiary Designations. You can also listen to the recent podcast – “The Good, The Bad and The Ugly of Beneficiary Designations”. Alternatively, watch the video here.