Life insurance policies and retirement accounts—such as 401(k)s and IRAs—are not typically owned by a trust during your lifetime. Instead, these accounts are controlled by beneficiary designations, which override any instructions in your will or trust.
This means that even if you have a trust in place, the proceeds from these accounts will go directly to the individuals you named as beneficiaries, bypassing your trust entirely.
Failing to update these beneficiary designations or trying to name a trust as the account owner can create unintended problems—like delays, tax complications, or assets going to someone you didn’t intend.
To be sure your estate plan works as you expect, it’s essential to regularly review and update the beneficiary designations on your life insurance and retirement accounts. Be sure to name both primary and contingent beneficiaries, and confirm they align with your overall planning goals.
If you want these funds to eventually be managed by a trust—for example, to control when and how your beneficiaries receive them—you can name the trust as the beneficiary, but it’s critical to do this under the guidance of an experienced estate planning attorney. Otherwise, you could inadvertently trigger avoidable taxes or complications.
Keeping your designations current is one of the simplest—and most important—ways to protect your legacy.
If you need help reviewing your beneficiary designations and ensuring they match your estate plan, give me a call.
