Most people associate estate planning with the creation of legal instruments designed to transfer property upon one’s death. While wills and trusts do serve an important purpose, many assets can be transferred without the use of these documents, as long as the owner clearly states their intention to do so. Beneficiary designations on financial accounts and insurance policies offer a simple way to shift ownership of key assets outside of the probate system.  

There are several types of property that are frequently transferred through beneficiary or “payable on death” designations, such as: 

  • Life insurance policies

  • Retirement accounts, including Roth IRAs and 401(k) accounts

  • Annuities

  • Financial accounts with “payable on death” or “transfer upon death” terms

When you name a beneficiary, the asset bypasses probate and is transferred directly to the designated individual or entity. As these funds or other types property do not become part of your estate, they can help avoid federal estate taxation if the value of your estate would otherwise exceed the statutory exemption amount. 

Beneficiary designations can override the terms of your will or trust. For example, if your will states that your estate should be divided equally among your children, but your retirement account lists only one child as the beneficiary, that child will receive the entire proceeds of the account. This makes it crucial to review and update your designations regularly. Failing to revise beneficiaries after major life events, such as marriage, divorce or the birth of a child, can lead to unintended consequences.

Many people name their minor sons or daughters as beneficiaries. Should an asset be directed to them, a guardian might be given control until the youth reaches legal adulthood. Ensure your beneficiary designations align with the overall goals of your estate plan to avoid disputes or inequities among your loved ones.

An experienced estate planning attorney can help you coordinate your designations with your will, trust and other estate planning documents. At the Law Firm of Joseph M. Udall, PLC in Mesa, we’re here to help Arizona residents develop comprehensive, enforceable estate plans. Contact us today by calling (480) 500-1866 or contacting us online to schedule a consultation and ensure your assets are distributed according to your wishes.