Many individuals are not well-informed about estate planning, and this is often due to the fact that they find it very easy to postpone these conversations. This mindset is understandable, especially as it is a common perception that estate planning is a concern that only needs to be addressed in the latter stages of life. Trust and estate law is very nuanced, and I often work with clients when problems arise with the will or estate. One of the questions that my clients will ask is whether a will would override a beneficiary designation in New Jersey.
This topic will come up when someone is questioning whether wills are fallible in the context of potential challenges. Below, we provide a look at beneficiary designations and will beneficiaries in the context of New Jersey estate planning.
Planning the Distribution of Assets
New Jersey estate planning attorneys set the stage for the orderly and timely transfer of assets to loved ones, charities and other deserving parties. The signing of a will or a will combined with a New Jersey revocable trust establishes a coherent plan for the bequeathing of hard-earned assets after death.
Beneficiary designations are especially important in the context of New Jersey estate planning. However, estate planning is not complete after signing a will. The failure to properly account for life insurance and/or retirement account beneficiary designations can cause frustration and confusion. Each such designation must be strategically coordinated with the overarching estate plan. Fail to account for such subtleties and the resulting asset distribution after the testator’s death might not be as desired.
A supposedly comprehensive New Jersey will is not guaranteed to override retirement account, life insurance account or other account beneficiary designations. Though few are aware of it, the truth is beneficiary designations have priority over wills.
Consider a situation in which a testator’s will bequeaths the entirety of the estate to a significant other. If the decedent has a $500,000 life insurance policy and his or her two kids are designated as 50/50 beneficiaries, the life insurance proceeds are bequeathed to the kids at the time of the account holder’s death.
In such a situation, the significant other does not receive the life insurance proceeds despite the fact that he or she was named as the sole beneficiary in the will. The legalese within the will transmits assets that are a component of the overarching decedent’s probate estate. Such assets are in the name of the testator, lacking specific designations for beneficiaries.
Beneficiary Designations Extend Beyond Retirement and Insurance
There is a common misconception that estate planning is complete after retirement and life insurance account beneficiaries are changed in accordance with the testator’s desires. However, such accounts’ beneficiary designations are not all-encompassing. Beneficiary designations also exist for certain properties, bank accounts, vehicles and more.
Update your beneficiary designations along with your will and you’ll set the stage for the prompt transfer of assets to beneficiaries as desired. The appropriate beneficiary designations sidestep the slow and potentially unfair probate process, providing your loved ones with an invaluable peace of mind.
Examples of assets that do not fall under the umbrella of the estate plan include:
- Beneficiary designations within retirement accounts
- Life insurance policies
- Brokerage accounts
- Certain bank accounts
Every New Jersey resident should be aware that assets that have a transfer on death or payable on death, commonly abbreviated as TOD and POD, respectively, are not considered to be components of the estate plan. Furthermore, assets that are titled in the name of several people considered to be tenants by entirety or joint tenants with the right of survivorship also override will beneficiary designations.
Why the Overriding of Beneficiary Designation Status Matters
Let’s take a look at an example that highlights the importance of how the naming of beneficiaries in retirement, life insurance and other accounts has the potential to override will beneficiaries. An estate plan that leaves the entirety of one’s assets to a specific individual such as a daughter or a spouse might not be honored as expected.
As an example, if your New Jersey estate planning attorney creates a will in which you leave an automobile to your oldest daughter from your first marriage yet your son from your second marriage is designated as the beneficiary, the vehicle will go to the son despite language to the contrary within your will. This is precisely why it is in your interest to regularly update your beneficiary designations as appropriate.
Consider a situation in which a testator divorces a couple weeks before passing away. If the testator’s will and retirement/life insurance account beneficiaries are not updated to reflect his or her marital status, the funds of each will be distributed as previously stated. A New Jersey estate planning attorney will help you determine if the judgment of divorce overrides one’s designation as a beneficiary.
Continue to update beneficiary designations after significant life events, be it the birth of a child, marriage, and retirement, ensuring deserving parties are named as beneficiaries for assets and payouts as you deem appropriate. It is also in your interest to update beneficiary designations in accordance with the details of a matrimonial settlement agreement in the event of divorce.
Recognize the Subtleties of New Jersey Law
Estate planning, divorce and other areas of law in New Jersey are different from those in other states. As an example, New Jersey law is unique in that it does not automatically shift 401(k) retirement account beneficiary designation after divorce. In plain terms, this means a spouse who has been divorced might have solid legal footing to make a legal claim to your retirement accounts after death.
Though the estate itself and your offspring might also have legal footing to make a claim against the ex-spouse in accordance with the language of the matrimonial settlement agreement, there is no guarantee that the claim will prove successful. You can prevent such a thorny legal situation by altering the beneficiary designation in a timely manner.
Beneficiary Designations Supersede the Will
In summary, beneficiary designations supersede the language of a will. My firm understands the idiosyncratic situations that have the potential to complicate or prevent the distribution of your assets as desired. We assist clients throughout New Jersey with every aspect of wills, trusts, and estate litigation.
Contact us today or call for a free consultation at 201.342.1700
