The form that overrides your will
You can pay an attorney to draft a will that says exactly where everything goes. A one-page form you filled out in 1998 can override it completely, and usually nobody finds out until it is too late to fix.
Here is the part that surprises people. Assets with a named beneficiary do not pass through your will. Life insurance, retirement accounts, annuities, and accounts marked payable on death all go directly to whoever is named on the form. The will governs what is left over.
So if the form and the will disagree, the form generally wins. And the form is usually older, filled out faster, and thought about less.
How this actually goes wrong
The former spouse. This is the classic. A policy or a plan from an old job still lists a first spouse who has been out of the picture for twenty years. Divorce does not automatically clear every designation, and state rules on this vary. The current family finds out at the worst possible moment.
The blank form. If no beneficiary is named, or the named person has died, the proceeds usually default to the estate. That drags an asset that was designed to pass privately and quickly into probate, where it becomes slow, public, and reachable by creditors.
The deceased beneficiary. Nobody updates the form after a death in the family. Then the primary beneficiary predeceases the owner and there is no contingent named.
The minor child. Naming a young child directly sounds loving and creates a mess. Insurers generally will not pay a large sum to a minor, so a court appoints someone to manage it, and the child typically receives the balance outright at eighteen. Very few eighteen year olds should receive a six figure cheque.
The trust that was never connected. A family pays for a trust and then never changes the designations to point at it. The trust exists. Nothing flows into it.
An estate plan is not the documents. It is whether the documents and the paperwork agree with each other.
The audit takes about an hour
Make a list of everything that has a beneficiary attached:
- Every life insurance policy, including small ones through work
- Every retirement account, including plans from jobs you left
- Annuities
- Bank and brokerage accounts marked payable on death or transfer on death
- Health savings accounts, which people almost always forget
For each one, confirm the primary beneficiary, confirm a contingent beneficiary exists, and check that the names are spelled the way the institution has them. Then ask whether that arrangement still reflects what you want.
Two things worth thinking harder about
Do not name minors directly. Talk to an attorney about a trust or a custodial arrangement so somebody sensible controls the money until the child is old enough to handle it.
Coordinate with the will rather than assuming it covers this. If you want three children treated equally and one of them is the named beneficiary on a large policy, the will saying "divide equally" does not fix it. The policy pays that one child, and the rest is divided.
Where we fit
We are not attorneys and we do not draft documents. What we do is read every designation you hold, tell you plainly where they conflict with each other or with your intentions, and hand that list to the attorney who does the drafting.
It is unglamorous work and it is the single most common thing we find broken. It also costs nothing to check, which makes it the cheapest fix in estate planning.
Questions about your own situation? The first conversation costs nothing and commits you to nothing.