If you have a brokerage account, IRA, life insurance policy or bank accounts, you may have had to name a beneficiary, so that upon your death, these assets will pass directly to the beneficiary without being subject to probate or the terms of your will. Non-probate property can be used very effectively to transfer wealth to your heirs. Likewise, if you have assets and property, you have likely drafted a will-hopefully with the help of an estate planning attorney-to distribute your wealth among your heirs. Wills are an essential part of any estate plan.
Assuming you have both beneficiary forms and a will in place, you appear to have your estate plan in place. The estate tax exemptions are much higher than most average estates, so there is nothing to worry about, right?
Imagine that your wishes are to have your assets divided equally to your son and daughter. However, you also have an investment account that names your son as the sole beneficiary. Should the executor of your estate consider the money your son will receive from the brokerage account when dividing the probate property, or was it your intention to give your son 50 percent of the probate estate and the balance of the brokerage account, thus leaving your daughter with less?
Time for every financial professional’s favorite answer: It depends.
If the brokerage account is payable on death, all your son needs to do is provide the death certificate to the brokerage firm, and he will receive the money. This has nothing to do with the will, estate or executor. The will, however, needs to be examined a little more closely. The will may include language that refers to the non-probate property; therefore, possibly indicating consideration when probate assets are divided.
If it does not and the executor and heirs truly believe that the will does not reflect your wishes, the parties can each consider entering into a settlement agreement to divide the assets equally. This would require full disclosure among all parties and generally requires an estate planning attorney’s guidance.
There are also unknowns to take into consideration. Does the executor know if you advanced your daughter part of her inheritance during your lifetime? Perhaps you gifted her a substantial sum to use as a down payment for a house or bailed her out of a financially devastating divorce.
For investors, this is one of the many scenarios that can happen if you do not coordinate your will with your beneficiary designations. Once you are gone, there is no way to make your wishes known; therefore, it is important to be clear in your will. Consider an additional letter of instruction for your executor and revisit your overall estate plan with your financial adviser and attorney at least every two years.