You updated your will. You carefully decided who should receive your property, named the people you trust, and put your wishes in writing.
But what about the beneficiary form you completed years ago when you opened a retirement account or purchased life insurance?
For many Pennsylvania families, that older form can be just as important in determining what happens to a particular asset.
Certain assets pass directly to a named beneficiary rather than through a will. If the beneficiary designation and the will point in different directions, the will generally does not control what happens to that asset. That can create an unexpected result, especially after a marriage, divorce, death, birth of a child, or other major change in the family.
Understanding which document controls is an important part of estate planning because a plan works best when the will, beneficiary designations, account ownership, and other planning documents all support the same intentions.
When Does a Beneficiary Designation Control Instead of a Will?
A will directs the distribution of property that becomes part of a person's probate estate. Not every asset passes through probate, however.
Life insurance policies, retirement benefits, annuities, and other accounts or financial arrangements can allow an owner to name a beneficiary who receives the asset after the owner's death. When a valid beneficiary designation governs the transfer, the asset generally passes according to that designation rather than according to instructions in the will.
Pennsylvania law specifically provides that beneficiary designations for life insurance and certain pension, retirement, and employee-benefit arrangements are not testamentary and are not subject to the law governing transfers by will.
Consider a common example. A parent signs a new will leaving property equally to three children. Years earlier, however, the parent named only one child as beneficiary of a life insurance policy. If that designation remains valid when the parent dies, changing the will alone generally does not change who receives the insurance proceeds.
The result can surprise a family because the most recently signed document is not necessarily the document that controls every asset.
Which Assets Should You Review for Beneficiary Designations?
Start by making a list of your significant assets and identifying which ones have their own beneficiary designation or transfer instructions instead of relying only on your will.
Depending on how they are owned and the terms of the account or contract, assets worth reviewing can include:
- Life insurance policies
- Individual retirement accounts
- Employer-sponsored retirement plans
- Annuities
- Accounts with payable-on-death or transfer-on-death arrangements
- Other financial accounts or benefits with designated beneficiaries
The rules are not identical for every type of asset. Retirement plans can be subject to federal law and plan-specific requirements, while other accounts are governed by their contracts and applicable state law.
That is why reviewing only the will can leave an important part of an estate plan untouched.
The practical question is not simply, "What does my will say?" It is also, "How is each significant asset actually scheduled to transfer when I die?"
How Outdated Beneficiary Designations Create Unintended Results
Problems often begin because beneficiary forms are easy to forget.
You might have named a beneficiary when you started a job 20 years ago, purchased a policy when your children were young, or opened an account before your family circumstances changed. Years later, you update your will and assume the new plan covers everything.
It may not.
A designation that no longer reflects your wishes can create uncertainty or an unintended distribution. Common reasons to review beneficiary information include:
- Marriage or remarriage
- Divorce or separation
- Birth or adoption of a child
- Death of a previously named beneficiary
- Changes in relationships with family members
- Creation or revision of a trust
- Major changes to an overall estate plan
Divorce deserves particular care. Under Pennsylvania law, certain revocable beneficiary designations in favor of a former spouse generally become ineffective after divorce. A similar rule can apply when a Pennsylvania resident dies during divorce proceedings after the legal grounds for divorce have been established. Exceptions exist, including when the designation was intended to survive the divorce. Federal law can also affect the result for certain employer-sponsored retirement and benefit plans, including plans governed by ERISA.
For that reason, it is better to review and update beneficiary information directly rather than assume that a divorce or a change to your will has resolved an older designation. Court orders, plan documents, and applicable federal or state law can also affect who is entitled to receive the asset.
Do Your Will and Beneficiary Designations Work Together?
This is where estate planning becomes more than drafting documents.
A carefully written will cannot, by itself, ensure that your overall estate plan produces the result you intend if major assets are arranged to pass differently.
Alan Natalie, Attorney At Law helps families in Erie County and throughout Northwestern Pennsylvania look at the estate plan as a whole. That includes examining how assets are titled, who is named on beneficiary forms, what the will provides, whether trusts are involved, and whether those pieces work together.
For example, a parent may want three children to share an estate equally. If a substantial retirement account passes directly to only one child while the remaining property passes under the will, the final distribution can look very different from what the parent had in mind.
For another family, an intentional unequal designation may be exactly what the person wants. The goal is not to make every beneficiary designation identical. The goal is to make sure the result is deliberate rather than accidental.
What If Your Family Finds an Unexpected Beneficiary Designation?
After someone dies, family members sometimes discover a beneficiary designation they did not know existed.
A surprising designation does not automatically mean the transfer is invalid. There can be legitimate reasons why a person chose one beneficiary over another.
At the same time, an unexpected designation can lead to a beneficiary dispute over whether the designation was properly completed, whether a later designation exists, whether the named beneficiary survived the account owner, or whether the terms of the account, policy, or retirement plan affect who is entitled to receive the asset.
Questions about capacity, undue influence, fraud, or whether someone acting under a power of attorney had authority to change the designation also require a different legal analysis.
These are different questions from simply comparing the beneficiary form with the will.
If the concern is that the documents conflict because an estate plan was never fully updated, the lesson for families who are still planning is straightforward: coordinating the documents now can prevent confusion later.
When Should You Review Your Beneficiary Designations?
An estate plan should not be treated as something you sign once and never examine again.
Review your beneficiary designations after a major family or financial change and whenever enough time has passed that you are no longer certain whom your accounts and policies name.
Check the current beneficiary information on your retirement accounts, insurance policies, and other significant accounts to confirm who is actually named and whether those instructions still match what you want.
For people in Northwestern Pennsylvania who have updated a will but have not reviewed older accounts, that can be one of the most valuable places to start.
Make Sure Your Pennsylvania Estate Plan Still Reflects Your Wishes
A will can clearly express what you want to happen to your probate property, but it cannot necessarily redirect an asset governed by a valid beneficiary designation. Reviewing both is an important part of making sure your estate plan still reflects your intentions.
Alan Natalie, Attorney At Law helps individuals and families in Erie County and throughout Northwestern Pennsylvania create and review estate plans that account for wills, beneficiary designations, trusts, account ownership, and other important planning documents. Attorney Natalie can help identify inconsistencies and explain what steps are available to address them before they create uncertainty for your family.
If you have changed your will, experienced a major life event, or simply have not reviewed your beneficiary designations in years, contact Alan Natalie, Attorney At Law to discuss whether any part of your Pennsylvania estate plan should be updated.
Disclaimer: Results may vary depending on your particular facts and legal circumstances. The articles on this blog are for informational purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact the law firm directly.