Some types of assets allow you to designate a beneficiary directly with the organization that holds them. Examples include 401(k) retirement accounts, life insurance policies, Totten trusts and annuities. You might choose these asset types partly because they can pass directly to your chosen beneficiary upon your death rather than needing to pass through probate.
This is fine as long as when you pass away the choice of beneficiary on the account still matches whom you would want to receive the asset. That’s why it’s crucial to ensure that your beneficiary designations are current. There is nothing to stop you from updating a beneficiary designation as often as needed throughout your lifetime. The problem is that people sometimes forget to do so.
What if your will contradicts the designation?
Let’s imagine you get divorced. You’ll likely have a lot to deal with. It’s possible that you update your will to remove any mention of the person you divorced, but you forget that years before, when you opened a particular account, you named them as the designated beneficiary.
Regardless of what is in the updated will, it will have no effect on what happens to that asset with the beneficiary designation on it. Even if you amend your will to state that you want that asset to go to your sister or that you want all of your assets to go to your sister, that particular asset will still go to your ex-spouse unless you got around to changing the beneficiary designation on the account itself.
It’s easy to make mistakes or overlook things when creating and updating your estate plan. Appropriate legal guidance can reduce the chances you do.