Estate Planning: Beneficiary Designation vs. Will

Estate Planning: Beneficiary Designation vs. Will
Picture of Scott Hohman, CFP®, AIF®

Scott Hohman, CFP®, AIF®

Estate planning is an essential part of every person’s overall financial planning. When you pass away, you want to ensure that your assets are distributed according to your wishes. However, many people are unaware of how some of the most basic estate planning tools function. Two common methods of distributing assets are beneficiary designations and wills. In this article, we’ll explore beneficiary designation vs. will differences to help you understand how to use each in your personal estate plan.

Beneficiary Designation vs. Will: What is a Beneficiary Designation?

A beneficiary designation is a legal document that specifies who will receive your assets upon your death. It is most commonly used for assets such as life insurance policies, retirement accounts, and annuities. When you open one of these accounts, you will be asked to designate a beneficiary. You can name one or more beneficiaries, and you can specify the percentage of the account that each beneficiary will receive. The beneficiaries you name can be changed as your life circumstances change. In fact, it’s a good idea to review your beneficiaries annually to be sure you don’t need to make changes.

One of the main benefits of a beneficiary designation is that it bypasses probate. Probate is the legal process of distributing assets after someone dies. It can be a lengthy and expensive process, and it is not always necessary. By designating beneficiaries, you can avoid probate altogether, which can save your beneficiaries time and money – as well as emotional stress during an already challenging period of grief.

SEE ALSO: Finance Tips for First Generation Wealth Builders


Beneficiary Designation vs. Will: What is a Will?

A will is a legal document that outlines how your assets will be distributed after you die. It allows you to name an executor, who will be responsible for carrying out your wishes. In your will, you can specify who will receive your assets, and you can also name guardians for any minor children you have.

One of the main benefits of a will is that it allows you to be very specific about your wishes. You can detail exactly who should receive each of your assets, and you can also include any special instructions or conditions. A will can also be updated at any time, which allows you to make changes if your circumstances change. Try not to think of your will as a “one and done” process. Rather, it should be a document that evolves with you as your life changes.

Beneficiary Designation vs. Wills: Things to Remember

Many people use both of these common methods to distribute assets after they pass, so try not to think of estate planning as a beneficiary designation vs. will decision. The best choice for distributing each type of your assets will depend on your individual circumstances.

Here are a few factors to consider:

Probate: If you have assets that are likely to go through probate, a will may be the better choice. Probate can be a lengthy and expensive process, and a will can help simplify things for your beneficiaries.

Specificity: If you have specific wishes for how your assets should be distributed, a will may be the better choice. A will allows you to be very detailed and specific about your wishes.

Speed: If you want your beneficiaries to receive their assets quickly and without any hassle, a beneficiary designation may be the better choice. By designating beneficiaries, you can bypass probate and ensure that your assets are distributed quickly and efficiently.

Flexibility: If you anticipate that your circumstances may change in the future, a will may be the better choice. A will can be updated at any time, which allows you to make changes if your situation changes.

Again, many people have both beneficiary designations and a will. This ensures that all of your assets are covered and that your wishes are clear.

SEE ALSO: Multi-Generational Wealth Planning: Tips to Prepare Your Heirs for an Inheritance


Beneficiary Designation vs. Will: Don’t Make This Mistake

There’s one very important point to remember as you’re estate planning, and it’s that your will won’t override your beneficiary designations. So, you should not address one specific asset, such as a 401(k), in both ways. If you have your ex-spouse listed as your designated beneficiary, but then you update your will to state that your children should inherit the account, the law says – in almost all cases – that the beneficiary designation will stand.

Final Thoughts

Estate planning is an important part of financial planning, and you can use multiple tools to accomplish your wishes. It’s a good idea to consult with an estate planning attorney to help you make the right decision for your situation. With careful planning, you can ensure that your assets are distributed according to your wishes and that your loved ones are taken care of when you’re gone.

The views expressed represent the opinion of Resolute Wealth Advisor, Inc. (RWA). The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While RWA believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the RWA’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.

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