The Power of Beneficiary Designations: What Every Client Should Know
When people think of estate planning, they often picture wills and trusts – but one of the most powerful tools in your estate plan is often overlooked: beneficiary designations. Those simple designations, tied to retirement accounts, life insurance, and even some bank accounts, can override your will and determine the direct transfer of wealth at death. From an estate planning perspective, that makes them both incredibly useful – and potentially risky if not managed carefully.
Why Beneficiary Designations Matter So Much?
- They Bypass Probate. Assets with named beneficiaries (like IRAs, 401(k)s, and life insurance) typically pass directly to those beneficiaries without going through probate. This means faster access for your loved ones and fewer legal fees.
- They supersede your will. Even if your will says one thing, the beneficiary form rules.
- They’re critical in tax planning. Designations can also affect how your heirs are taxed. For example, naming individuals as beneficiaries of a retirement account can help stretch the tax impact over 10 years, while naming your estate may accelerate taxes unnecessarily.
Common Mistakes We See:
- Outdated beneficiaries (especially after divorce, remarriage, or the birth of children)
- No contingent beneficiaries listed
- Minor children named directly (can lead to court-appointed guardianship)
- Mismatched designations and estate planning documents
- Failure to name a trust when appropriate (especially for special needs beneficiaries or complex family dynamics)
What You Should Do Now?
- Review all beneficiary designations annually or after major life events.
- Coordinate designations with your overall estate plan.
- Consider when to name a trust as a beneficiary – for example, to manage distributions to minors or protect assets from creditors.
Need a Beneficiary Review?
We offer beneficiary audits as part of our estate planning services. Whether you’re updating your old estate plan or just getting started, we’re here to help ensure your designations reflect your true wishes – and work in harmony with your plan.
About the Author
Hillary E. Mims
NC State Bar Certified Paralegal