Many times when people are updating their wills or trusts, they make changes
to their beneficiary designations. This may be prompted by family changes
such as a marriage, divorce, birth or death. It is a very prudent practice
to keep your estate planning documents, such as your will and your trust
updated and current. However, sometimes people forget that beneficiaries
are named in other documents in addition to their wills or trusts.
For example, beneficiaries can be named for accounts and policies such
as life insurance, 401(k) plans, IRAs, annuities, brokerage accounts and
bank accounts. So, if you are making a change to your beneficiaries in
your will or trust, remember to review the beneficiary designations on
these accounts and policies as well.
Why is it important to remember to review and change the beneficiaries
on these accounts and policies? It is important because polices and accounts
with named beneficiaries pay the benefits directly to those beneficiaries
upon your death; in other words, the payments do not pass through your
will or trust (unless the estate or the trust is the named beneficiary
on the account or policy). This means that any changes you make to beneficiaries
in your will or trust will not also change who these policies and accounts
show as the beneficiaries. You have to remember to change the beneficiaries
on these accounts and policies directly. If you forget to update the beneficiary
designations on these specific accounts or polices directly with your
new beneficiary information, then with very few exceptions, the old beneficiary
who is still named on the account will receive the benefits.
Therefore, it is very important to keep track of all your beneficiary designations,
both in your will and trust and in these accounts and policies, so you
can make sure that all your beneficiaries are correctly named and will
be receiving the benefits you intended.