When creating an estate plan, it is important to consider the beneficiaries listed on financial accounts like retirement plans, annuities and life insurance policies before drafting a will. This is especially true in states like California that have strict community property laws. Individuals are usually required to designate beneficiaries when they open financial accounts, and these beneficiaries will be paid if the account holder passes away even if the will contains contradictory instructions.
Probate
When an individual passes away, their assets are not distributed to their heirs until a probate judge has ruled that the will is valid. Heirs must also wait until the estate’s debts have been settled. The probate process is sometimes complex and expensive, and it can drag on for months if the will is contested. None of this is of concern to designated beneficiaries because financial accounts do not go through probate, so they are paid much more quickly.
Community property
The state laws dealing with how marital property is divided can influence beneficiary designations, wills and trusts. California is a community property state, which means that all of the money earned during a marriage is owned equally by both spouses. When a married individual in California places some of their income in a retirement account, their spouse must be listed as the designated beneficiary. Exceptions to this rule are made when spouses state in writing that another individual can be named instead.
Revisiting estate plans
Disputes over beneficiary designations and inheritances often occur when the estate plans involved were written many years ago and never revised. An estate plan should provide peace of mind, which is why it is important to avoid misunderstandings and potential conflict by revisiting wills, trusts and designated beneficiaries on a regular basis.