Will or Beneficiary Form: Which Controls?

The Facts: I was told that the money in the joint account I have with my son and the money in my IRA will not be distributed according to my Will when I die.

The Question: Is that correct?

The Answer: Yes, that is correct. Many people mistakenly believe that, following their death, the provisions in their Will control the distribution of all of their assets. As a result, assets that they hold jointly with others, funds in retirement accounts, life insurance death benefits and any other assets which are distributed pursuant to a beneficiary designation form are often distributed in a manner that is contrary to the wishes set forth in their Will.

For example, if a person executes a Will that provides that his assets will be equally divided between his two sons, the assets owned outright by that person at the time of his death, known as his probate assets, will, in fact, be divided equally between his sons. However, if the person has $25,000 in a checking account that is jointly held with one of his sons in addition to probate assets, the money in the account will not be divided equally but will pass entirely to the son whose name is on the account. That is because the money in the joint account is not a probate asset but a non-probate asset. It is not subject to the dictates of the father’s Will. As a result, one son will inherit $25,000 more than the other son despite their father’s wish that his estate be divided equally. The same is true of funds held in qualified accounts such as IRA’s.

Regardless of the provisions in a person’s Will, the funds in an IRA will pass to the individuals whose names appear on the beneficiary designation forms on file with the plan administrator. Using the example above, the only way the father’s wish that all of his assets be divided equally between his two sons would be realized is if the father listed each son as a 50% beneficiary of his IRA or if no living beneficiary was listed on the beneficiary designation form. In the latter case, the money in the IRA would pass to the father’s estate, thereby becoming a probate asset. It would then be distributed in accordance with the father’s Will.

Although there are advantages to having some of your assets pass outside your Will, thereby avoiding the probate process, it is important to understand how each asset you own will be treated upon your death. Ignoring the distinction between probate and non-probate assets could prove disastrous since you could inadvertently give one beneficiary a much larger share of your estate than you intended while hurting the feelings of another.

If you have both probate assets and assets that will pass outside your Will based upon beneficiary designation forms or the like, you should consult an estate planning attorney to insure that the arrangements in place reflect your wishes. An experienced attorney can advise you of strategies you can use to ensure that all of your assets are taken into consideration when your probate assets are distributed and none of your beneficiaries inadvertently receive a windfall.

This article first appeared in the August 23, 2012 issue of the Times Beacon Record Newspapers.

Linda M. Toga of The Law Offices of Linda M. Toga, P.C. is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.