This is because beneficiary designations are considered contractual agreements between the account holder and the financial institution.
Why This Occurs:
Clarity and Efficiency: Beneficiary designations provide a clear and direct path for transferring assets upon death, bypassing the often lengthy probate process.
Contractual Agreement: The beneficiary designation is a contract between the account holder and the financial institution.
Specific to the Account: Beneficiary designations apply only to the specific account, not the entire estate.
Potential Issues:
Disinheritance: If someone is unintentionally left out of a will or trust but is named as a beneficiary on a financial account, they could receive assets contrary to the deceased's wishes.
Estate Disputes: Discrepancies between beneficiary designations and estate plans can lead to family conflicts and potential legal battles.
How to Prevent Issues:
Regular Review: Regularly review beneficiary designations to ensure they align with your overall estate plan.
Consistent Beneficiaries: Strive to name consistent beneficiaries across all financial accounts and estate planning documents.
Consult with an Attorney: An estate planning attorney can help you create a comprehensive plan that addresses potential conflicts between beneficiary designations and your will or trust.
It's crucial to understand that while beneficiary designations can override a will or trust, they don't necessarily replace the need for these estate planning documents. A will or trust can provide instructions for distributing the rest of your estate and address other important matters like guardianship for minor children.