Wills are legal documents that provide instructions as to who receives your assets when you die. But there are other ways to leave an inheritance for a loved one — like through beneficiary designations. Assets with a beneficiary designation are payable on death to the named party, and they can transfer outside of the probate process, unlike a will. According to the Policygenius estate planning survey, only 33.8% of people know that payable-on-death accounts can be received by a designated beneficiary.
You can and should use both wills and beneficiary designations as part of your estate plan, but take care to coordinate which assets should be distributed directly to a beneficiary and which are bequeathed through your will.
A beneficiary designation usually overrides the terms of a will, and you might cause confusion for the people you leave behind if you include something in your will and then name someone else to receive it through a beneficiary designation.
Key takeaways
You can transfer life insurance proceeds, a bank, account, and other assets by adding a beneficiary designation instead of using a will.
When you name a beneficiary directly to an asset it usually supersedes the terms of your will.
A robust estate plan uses both a will and beneficiary designations to pass on assets.
How a beneficiary designation works
Certain assets let you name beneficiaries to receive them after you die. These assets are also called payable-on-death (POD) accounts or transferable-on-death (TOD) accounts, and they can include a life insurance policy, a retirement account, or bank account. Upon your death, the beneficiary can claim the asset you named for them to receive directly from whoever holds it, like the insurance company or bank.
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In some states you might even be able to add a beneficiary to a piece of real estate. That means you don’t need a will to leave someone your house.
In order for an asset to pass to the named beneficiary, you must complete the proper paperwork — a beneficiary designation form. You can even include a contingent beneficiary in case the primary beneficiary predeceases you.
→ Learn how to make your account payable on death
Beneficiary designation vs will
A beneficiary designation and a will are both estate planning options that can help pass along money and assets to your heirs. The main difference between a beneficiary designation and a will is that assets with designated beneficiaries can avoid probate, while assets included in a will don’t. Like assets in a living trust, assets with beneficiary attached to them operate separately from a will.
This makes adding a beneficiary designation to an asset an advantageous and convenient way to leave an inheritance, since your loved ones can receive the money or assets with minimal court involvement.
When someone dies, their estate may need to go through probate and that could include proving the will’s validity in court upon their death. The probate process can take time and money — filing fees at the least, and attorney fees if there are issues, like someone who wants to challenge or contest the will. All of this delay how long it takes for assets included in a will to transfer to their rightful beneficiaries.
→ Learn more about probate and how to avoid it
If you include an asset in your will, but the asset already has its own beneficiary designation, the terms of the will can be ignored. For example, let's say your will stipulates that your wife should receive your savings, but you already named your daughter as the beneficiary of your bank accounts. When you die, your daughter will receive the money in the account, because a beneficiary designation takes precedence over the terms of a will. This is why it is imperative to exclude any payable-on-death assets from your will.
→ Find out what else you should never put in your will
Even if your estate consists of assets with named beneficiaries, you still need a will. A will can pass along personal belongings and possessions of sentimental value and also name a guardian for a minor child. You can get started on your estate plan with Policygenius.
What happens if I don’t add beneficiaries?
If you fail to name a designated beneficiary for an asset, it will become part of your estate if you don’t have any measures in place like a will. By writing a will, you can leave instructions as to what happens to the property in your estate, but if you die without one then intestacy law will determine who inherits.
There may be unwanted tax implications for certain assets like retirement accounts if you don't name a beneficiary to receive them. A 401(k) or IRA that becomes part of the probate estate may have to be distributed to beneficiaries according to different terms than expected, resulting in unnecessary income tax for the beneficiaries.
You should consult with a financial advisor if you have questions about estate planning and taxes, including how they work with retirement accounts.
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FAQs
A beneficiary designation usually overrides the terms of a will, and you might cause confusion for the people you leave behind if you include something in your will and then name someone else to receive it through a beneficiary designation.
Does a will override a beneficiary of life insurance? ›
In general, life insurance beneficiaries generally overrule a will. For instance, if your will states that you want your partner to receive your death benefit, but the policy itself lists your sibling as the only beneficiary, your sibling will be eligible to receive the death benefit and your partner will not.
Does a beneficiary take precedence over a will? ›
Beneficiary Designation Takes Precedence Over A Will
This means that if you get divorced and remarry, but do not update your beneficiaries, your former spouse is the legal heir to those accounts if you named him the beneficiary while you were married.
Does a will override a beneficiary on a 401k? ›
Naming or changing beneficiaries
When you open up an IRA or begin participating in a 401(k), you are given a form to complete in order to name your beneficiaries. Changes are made in the same way — you complete a new beneficiary designation form. A will or trust does not override your beneficiary designation form.
Can next of kin override beneficiary? ›
However, there may be certain circ*mstances where the executor or next of kin could contest the beneficiary designation. For example, if there is evidence of fraud or undue influence in the beneficiary designation process, the court may invalidate the designation and award the proceeds to the estate.
Are life insurance policies part of the estate? ›
Unless payable to your own estate, death benefits payable under your life insurance policies are NOT estate assets, which means they do not go according to your Will and which sometimes means they go to the “wrong people.” Money paid out on your life insurance policy when you die is not “your” money.
Will life insurance companies contact beneficiaries? ›
Many life insurance companies try to contact beneficiaries if the beneficiaries don't contact them first. The “catch” is that there's no automatic process that tells them about policyholder deaths.
Does a joint bank account override a will? ›
Yes, joint ownership of an account overrides a Will. The joint ownership will be effective over and supersede any directions in your Last Will and Testament regarding a specific account and how those assets are divided.
Can an executor withhold money from a beneficiary? ›
Executors are legally empowered to withhold money from a beneficiary if there's a legitimate and lawful reason, such as unsettled debts, taxation issues, or ongoing estate litigation.
Can beneficiaries see bank accounts? ›
In conclusion, beneficiaries can request get entry to bank statements from the executor. However, there are factors to consider. The executor has an obligation to truly administer the estate and can also want to assess financial institution statements to fulfill this responsibility.
Key takeaways
Beneficiaries named on your 401(k) plan inherit its assets, even if you stipulate in a will that it goes to others, which is why it's important to designate them in your plan. Not designating a beneficiary could cause your estate, which includes the assets in your 401(k), to go through probate.
Does a 401k beneficiary avoid probate? ›
Do retirement accounts pass through probate? NO, as long as the beneficiaries are properly designated. Keep in mind that if the will stipulates anything about such accounts, the named beneficiaries take precedence over the will and the assets will be distributed to the named beneficiaries on the accounts.
Does beneficiary supercede a trust? ›
It is worth noting that the beneficiary designation on a POD account supersedes any conflicting instructions in a Will or trust. Therefore, if a Will or trust specifies different beneficiaries or distribution instructions for the same account, the beneficiary designation will prevail.
Does the oldest child inherit everything? ›
The thinking that the oldest child continually inherits the whole thing is a frequent misconception. In reality, inheritance legal guidelines vary depending on the US and state, and many factors come into play, such as the presence of a will, the type of belongings involved, and the household structure.
Who is first in line for inheritance? ›
The line of inheritance begins with direct offspring, starting with their children, then their grandchildren, followed by any great-grandchildren, and so on. The legal status of stepchildren and adopted children varies by jurisdiction.
Can a beneficiary refuse an inheritance? ›
Although inconceivable to some, there are people who choose to refuse an inheritance. That's a personal decision that has legal consequences. No matter your "why," however, you must carry out the process properly to ensure that your disclaimer is valid, and deal with the ramifications both for you and the estate.
Can a beneficiary of life insurance be contested? ›
Can you dispute a life insurance beneficiary? It's possible to dispute or contest a life insurance policy. However, doing so requires a legal court process. Since the process is quite complex, you should hire an experienced attorney to help you out.
Can you leave life insurance in a will? ›
If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the proceeds, the person named in the life insurance policy will win. Any intentions in the Will don't influence or have any legal power over what's in the will.
Can a POA change a life insurance beneficiary? ›
Someone with power of attorney can only change life insurance beneficiaries if permitted to do so under state law and by the power of attorney document the policyholder executed.
What is life insurance beneficiary rules? ›
If your primary beneficiary passes away before you or can't be located, the contingent beneficiary will receive the payout. As a standard life insurance beneficiary rule, you must explicitly identify each beneficiary with their full name and Social Security number.
