Proper Use of Beneficiary Designations to Complete Your Estate Planning

By T. Aaron Dobbs and Kelley M. Bentley –

Although you may have a Last Will and Testament, your estate plan may not yet be complete. Often, clients do not realize that some of their assets may not pass according to the terms set forth in their will.

Your estate’s assets can be divided into two broad categories: probate assets and non-probate assets. Probate assets include real estate and personal property, as well as bank accounts and life insurance policies, that do not have a beneficiary designation. Non-probate assets are those that pass pursuant to a right of survivorship agreement, pay on death designation or beneficiary designation.  Probate assets will pass according to the terms of your will; however, non-probate assets will pass according to the beneficiary designation. In other words, a beneficiary designation form trumps your will.

Sometimes it is advisable to have one or more of your assets pass outside of your will. In doing so, such asset will avoid being entangled in the probate process. However, there may be very good and well-intentioned reasons why you would want the asset to be governed by your will and pass through probate. For example, you may have minor children or a family member with special needs and your will creates a trust for these beneficiaries. In order to make sure the trust is funded, assets must pass through your will and not a beneficiary designation. Similarly, your will may have tax saving planning to mitigate or minimize estate taxes, and having your assets pass outside of your probate estate may frustrate this planning.    

  In order to ensure that your will-based estate plan is followed, it is necessary to coordinate all of the non-probate assets that you currently own – or may own in the future – with your estate plan. We recommend making a list of all of your non-probate assets and start with the largest assets first. Each financial institution has a different procedure for changing beneficiary designations, and you may have to contact financial institutions to obtain a specific form to change beneficiary designations. These forms may be available through the Internet, but you will need to make sure that you use the proper form for that type of account/policy. Additionally, some beneficiary change forms must be notarized or signature guaranteed.

Finally, you will need to make sure you properly word the beneficiary designation. It may be more complicated than simply inserting the name of an individual. Consider visiting with your estate planning attorney before making any changes to your beneficiary designations to make sure your wishes will be accomplished through both your probate assets and your non-probate assets.

T. Aaron Dobbs and Kelley M. Bentley are board certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. Aaron and Kelley specialize in estate planning, probate and trust law at Roberts Markel Weinberg Butler Hailey PC from its Fort Bend office.