Coordinating Beneficiary Designations with the Overall Estate Plan

Jan 3, 2020 | Videos, Wills & Trusts

by ACTEC Fellows Frank T. Adams and Richard R. Gans

Assets such as life insurance, annuities, pension plans, 401ks and IRAs have beneficiary designation forms as part of the set-up process. ACTEC Fellows Frank T. Adams and Richard R. Gans dig into the complexities around beneficiary designations so that viewers understand the essential facts.


I’m Richard Gans. I’m an ACTEC Fellow from Sarasota, Florida and I’m here today with Frank Adams who’s an ACTEC Fellow from Miami, Florida, and today our topic is coordinating beneficiary designations with the overall estate plan. So, I hear that assets, my clients tell me that assets can pass, or I tell my clients that assets can pass by beneficiary designation. What does that mean?

Assets can be owned in such a manner that on the death of the owner, they will pass by operation of law to the designated beneficiary; regardless of what the Will says, you won’t have to go through a probate process, just present a death certificate and the assets belong to the beneficiary who’s designated.

What kind of assets would pass by beneficiary designation typically?

There’s any number of categories. So, life insurance and annuities have beneficiary designations, pension plans including your pension plan at your office, your 401k plan and IRAs typically have a beneficiary designation.

I’ve also heard about assets that pass on death by what’s called TOD or POD. What do those stand for, and what are you talking about there?

We’re talking about an account, a bank account would be POD which means Payable on Death, or there can be a brokerage account where you have stocks or other securities which would be Transfer on Death (TOD) and a beneficiary is designated during the lifetime of the owner. He or she owns it but on death, the assets are either paid or transferred to the designated recipient.

So, you’ve touched on this before but I want to make sure that we emphasize it because it’s an important point. Does a Will normally govern where a beneficiary designation asset goes?

No, a Will will not govern that, and the problem is you might have the Will going to four children of the decedent, and you might have an account or an insurance policy or an IRA that only names one of those children. So the other three children are going to get cut out because the Will will not control typically.

So that plays right to the title of our topic about coordinating the beneficiary designation with the overall plan. So, could you expand on that a little bit, please?

Well, you want to make sure that when you take the trouble of seeing your lawyer and making decisions on how you want the assets to pass– that you’re not defeating that plan by having these outside assets, whether they’re Payable On Death or whether they are insurance benefits or an IRA account. You don’t want those to be naming an individual that’s inconsistent with what the Will provides.

So, sometimes a client will name the very same people as beneficiaries of an IRA or annuity or life insurance policy, the very same people that the client names under their Will. So, in that case, would I be well-advised simply to just name the estate or the person’s Will as the beneficiary?

Well, you might think that’s the case but there can be problems with that even if it’s the same designated beneficiary. For example, an IRA has consequences that if you name the estate, will be different than if you name the individual directly. In addition, you might name a grandchild to receive $10,000 in a joint bank account or in a bank account that is Payable on Death and think that’s a very easy situation. Well, if the grandchild is a minor, it’s not an easy situation. Before the bank’s going to pay those proceeds out, you’re going to have to establish a guardianship and that’s costly and cumbersome. If he had named the individual, the grandson, under the Will, he would have made alternative provisions for somebody to hold those funds for the grandson.

So last question, Frank. You’ve told me that in beneficiary designation, assets will go directly to the beneficiaries. So, suppose that the client says, “I’ve got this. I’ve got all my people lined up. I don’t need to tell my lawyer about that. I mean, that’s not going to be subject to my Will, so why would my lawyer care?” Is that a good way to look at that?

No, it’s not a good way. The lawyer is going to be the quarterback. She’s going to advise you on the issues we’ve talked about; for example, if you’ve named the minor grandson or the tax consequences, so you want to tell the lawyer about all the assets you have so he can go ahead and suggest the best way to leave those assets. At the same time, you’re going through the trouble of talking to the lawyer, making your Will. It’s not something people necessarily like to do on a regular basis. So, it’s a good idea to listen to the advice you get from the lawyer so that the plan that you thought you put in place is, in fact, the plan that is what controls at the time of your death.

Okay well, that’s fantastic. Frank, thank you very much for your insights here. Good to be with you today. Okay, thank you.

Thank you, Rick.