Suppose that your Will states that all of your three children are to inherit your assets equally. Suppose also that the beneficiary designation on your life insurance policy only lists two of your children as beneficiaries because your third one had not been born at the time that you filled out the form years ago.
Your youngest child won’t receive any of your life insurance benefits regardless of what it says in your Will. The beneficiary forms on file with your life insurance carrier trump the language in your Will.
Life insurance, retirement assets, annuity assets, payable-on-death (P.O.D.) accounts and transfer-on-death (T.O.D.) accounts are distributed based on beneficiary designations on file with the respective insurance carrier, retirement custodian, annuity company, bank and securities holders rather than by the terms of your Will.
If you have no beneficiary form on file, then the asset will be distributed to the “default” beneficiary as defined and explained in the relevant insurance, annuity, retirement plan or financial institution documents.
Sometimes the default beneficiary is your “estate”, which would then cause your Will to control the distribution of assets. All three children in our hypothetical example would then inherit equally.
But such a result may not provide a happy ending. Why? Life insurance proceeds included in your “estate” are not shielded from creditor claims against your assets whereas life insurance proceeds sent directly to beneficiaries are protected under Minnesota law.
Also, problems with your beneficiary designation on your retirement accounts may require a faster distribution of those assets, causing your family to lose the benefits of extended tax-deferred growth.
Be careful also that the person that you named as a beneficiary some years ago on your life insurance policy is still the person that you want as your beneficiary. Your ex-spouse is automatically written out of your Will when your divorce is completed. But if your ex-spouse is still named as the beneficiary of your life insurance, the ex-spouse inherits the money.
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Wittenburg Law Office, PLLC
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Minnetonka, MN 55305