Estate Planning & Elder Law Blog

Dear Jonathan: I recently prepared a trust that includes very specific provisions regarding the beneficiaries that I want to receive certain assets when I die. Does my trust override who I named as my beneficiaries in the will I prepared several years ago and the beneficiary that I named to receive the proceeds from my life insurance policy and inherit my retirement accounts?

Jonathan: No, and your question is a very good one. Beneficiaries can be named in a will, a trust or pursuant to a beneficiary designation. Failure to properly coordinate the naming of your beneficiaries in those various instruments, could have unintended, and in some cases, disastrous consequences. Let’s take a closer look at this:

Will/Trust

Both a will and a trust allow you to name who you want to receive your assets when you die. However, those instruments have control over different assets:

• A will only controls those assets that are subject to probate upon your death. Assets subject to probate are those assets that are titled in your name alone and for which there is no beneficiary named to receive that asset upon your death. If you don’t have any assets subject to probate at your death, it doesn’t matter who you have named as beneficiaries in your will, it will be ignored and of no effect.
• A trust only controls those assets it owns. Your trust can become the owner of an asset in two ways:
  • By you transferring an asset to the trust while you are alive; and
  • By you naming the trust as the beneficiary of an asset upon your death, either in your will or pursuant to a beneficiary designation.

If your trust does not own any assets, it will be ignored and of no effect. If you have both a will and a trust, your will should state that your trust is the sole beneficiary of your estate. This will ensure that the assets subject to probate end up in your trust once probate administration is completed.

Beneficiary Designation

A beneficiary designation comes in two varieties:

• A contractual beneficiary designation associated with certain investments like an insurance policy or, a retirement account like an IRA or a 401k; and
• A statutory transfer on death beneficiary designation, which essentially is a beneficiary designation for assets such as bank and investment accounts.

The beneficiary you have named on a bank account or a life insurance policy, for instance, will become the owner of that bank account and will receive the death benefits of that life insurance policy upon your death.

Titling of Assets

How your assets are titled will determine if that asset upon your death is controlled by your will, your trust or by neither. If an asset is titled in your name alone and there is no beneficiary named to receive that asset, it will be subject to probate upon your death, and its disposition will be controlled by your will if you have one.

If an asset is titled in the name of your trust, upon your death that asset will be distributed to the beneficiary you have named in your trust to receive that asset.

If an asset is titled jointly with others and there are survivorship rights attached to that ownership, your interest will be extinguished upon your death and the joint owners who survive, you will continue to own that asset.

What Happens if You Fail to Coordinate?

Your will, your trust, your beneficiary designations and how an asset is titled act independently of each other. Consequently, if the beneficiaries you have named in your will and trust, and the beneficiaries you have named on certain of your assets are not aligned with each other and are not aligned with how your assets are titled, you could end up with a mess of an estate plan.

Seek Counsel

To avoid inconsistencies in your estate plan and make sure that your intended beneficiaries are your actual beneficiaries upon your death you should enlist the help of an experienced estate planning attorney. This will ensure that the estate plan you put into place mirrors the estate plan you intended to put into place.

Jonathan J. David is a shareholder with Foster Swift Collins & Smith, PC and has extensive experience preparing a wide variety of lifetime and estate planning documents such as wills, trusts, durable powers of attorney for both financial and health care matters and living wills. Jonathan practices in the firm's Grand Rapids office:

Office - 1700 East Beltline, N.E., Suite 200 Grand Rapids, MI 49525
Phone - 616.726.2243
Email - jdavid@fosterswift.com 

THE INFORMATION CONTAINED IN THIS ARTICLE IS NOT TO BE CONSTRUED AS LEGAL OR TAX ADVICE OR LEGAL OR TAX REPRESENTATION AND SHOULD NOT BE RELIED UPON AS SUCH. FURTHER, THE INFORMATION PROVIDED IS NOT STATE SPECIFIC AND CERTAIN LAWS AND CUSTOMARY PRACTICES WILL VARY FROM STATE TO STATE. IF LEGAL OR TAX ADVICE OR LEGAL OR TAX REPRESENTATION IS DESIRED, PLEASE CONSULT WITH AN ATTORNEY.