When you first start planning your estate, you’ll run into a lot of unfamiliar terms. There are two terms that are easy to mix up: beneficiary designation vs. will. That’s because the two hold a close relationship, yet they serve different purposes. The goal of this guide is to help you understand the difference between these two important documents, and whether one can override the other.
Beneficiary Designation vs Will - What’s the Difference
A beneficiary designation is a document that names the individual who will receive an asset in the case of your passing. Beneficiary designations are unique to each asset and are managed by the entity that holds said asset. For example, let’s say you purchase a life insurance policy. The company that holds your policy will likely send you a beneficiary designation document during your enrollment process. In this document, you’d specify which individual should benefit from your policy in the case of your death.
A Will is an estate planning document that describes your wishes and instructions regarding the distribution of your assets. It’s a legally binding document that should hold up in court, providing that you set it up properly.
Wills and beneficiary designations both provide instructions for the distribution of assets, so what’s the difference? A Will provides instructions for all of the assets included in your estate, whereas a beneficiary designation is for a specific asset. Further, a Will is something that you set up on your own accord, whereas a beneficiary designation is a document required by the company holding the asset. Common assets that pass by beneficiary designation include life insurance, retirement accounts, and annuities.
Does Beneficiary Designation Override A Will?
You might be wondering, “does a beneficiary supersede a will?” The answer is yes, and that’s why you want to understand the difference between a will vs. beneficiary. It’s important to be very careful when dealing with these two documents.
When you sign off on your Will, you might feel relaxed with the belief that your estate plan is complete. Typically, there’s peace of mind that comes with knowing that your estate will be distributed according to plan.
However, don’t be too quick to relax. Typically, a beneficiary designation overrides a Will. For example, let’s say that you wrote in your will that you want everything to be left to your spouse. You have a retirement savings account, for which you designated your two children as your beneficiaries. At the time of your passing, the retirement savings account designation would supersede anything written in your Will. As a result, the money in the IRA would be transferred equally amongst your two children, instead of your spouse.
When an individual passes away, the instructions in a Will will only distribute assets included in their probate estate. Assets with beneficiary designations get excluded from the estate by default. To avoid any conflict, it’s critical to make sure that the language of your Will correlates with each of your beneficiary designations. It helps to perform a regular review and update your Will or beneficiary designation documents as needed.
Can an Executor Override a Beneficiary?
An executor has a legal duty to carry out any wishes and instructions included in a Will. However, many people don’t realize that their assets won’t all be automatically controlled by their Will upon their passing. As mentioned earlier, there are certain asset types that are passed by beneficiary designation, overriding the Will.
Therefore, an executor cannot override a beneficiary designation, unless specifically ordered to do so by the court. However, be careful not to confuse this with a beneficiary of a Will. The Will will also name beneficiaries who are to receive assets. An executor can override the wishes of these beneficiaries due to their legal duty. However, the beneficiary of a Will is very different than an individual named in a beneficiary designation of an asset held by a financial company.
Do I Need a Will If I Have Beneficiaries?
At Trust & Will, our mission is to empower any and all individuals to set up a basic estate plan at a minimum. This includes a Will, as well as a Trust when appropriate. You’ll likely have at least one designated beneficiary, but this does not cover all your bases.
Here are some quick reminders on the differences between beneficiary designation vs. will. Designated beneficiaries are typically only required for assets such as life insurance, annuities, and retirement savings accounts (IRAs, 401Ks, etc.) A Will encompasses all of your assets, including any real estate property, family heirlooms, checking accounts, and any sentimental possessions. A Will is also so much more than just language on asset distribution. It can also include your last wishes, as well as any important instructions you wish to leave to your loved ones.
Our services make it easy to set up your Will through our online platform. If you’re not sure who your beneficiaries are, inquire with the companies that hold your financial assets and inquire. It will create the perfect opportunity to update your beneficiary designations if needed, and incorporate the information into your Will. Is there a question here we didn’t answer? Reach out to us today or Chat with a live member support representative!