A common estate planning error is not understanding that your beneficiary, POD and TOD designations, for the most part, supersede the provisions of your Last Will and Testament. Let’s say your Will says your annuity goes to your son, but you designated your daughter as the primary beneficiary of your annuity. If both survive you, who gets your annuity? The answer is your daughter and the reason is that your beneficiary designations, for the most part, supersede the provisions of your Will.
Why do I say “for the most part”? The reason is that sometimes the provisions of your Will would determine who gets your annuity. For example, let us assume you had named your spouse as the beneficiary of your annuity and your spouse dies before you. In that situation, if you had not named a contingent beneficiary, the “default” provisions of the annuity contract determine who gets the annuity. Sometimes default provisions indicate that the assets are to be distributed to the owner’s estate and whereas other times the default provisions indicate that the asset is to be distributed to specific family members, for example to the owner’s children if there is no surviving spouse.
From our first meeting to when my clients sign their estate planning documents, I emphasize the importance of naming both primary and contingent beneficiaries.
At the first meeting, I do a thorough review of my client’s assets and determine which ones are retirement accounts, annuities and insurance policies. Once I have determined those assets, I inquire as to primary and contingent beneficiaries. Next I ask my client if he or she has any savings bonds, bank accounts, or non-retirement brokerage accounts for which he or she has named a beneficiary or designated a POD (pay on death) or TOD (transfer on death) beneficiary.
If there is any inconsistency between the beneficiaries of their estate plan and their beneficiary, POD and/or TOD designations, we discuss the reason for the inconsistency. For example, sometimes individuals designate charities as the beneficiary of one or more of their retirement accounts for the reason that the charities will not have to pay income taxes notwithstanding the fact that the charities will be receiving pre-tax monies. Moreover, some individuals avoid naming charities in their estate planning documents because of certain requirements under Massachusetts law such as the requirement that the Public Charities Division of the Attorney General’s Office is notified of the Massachusetts probate proceeding when a charity is inheriting under the estate plan.
Finally, at the signing, I provide my clients their estate planning documents in a binder that has an index as well as tabs and sheet protectors for each of their estate planning documents. Most importantly, there is a tab and sheet protector specifically for the confirmations of their beneficiary, TOD and/or POD designations.
Nothing in this article should be considered legal advice as this is a complicated area of the law.