Beneficiary designations are commonly used to name the individuals or entities who are to receive the proceeds of life insurance policies or retirement plans after the death of the owner. An increasing number of financial institutions are now using beneficiary designations for “regular” bank and brokerage accounts. Often accounts are designated this way without any serious thought as to the consequences, and without the knowledge or understanding of the account holder.

The designation of a beneficiary on regular bank and brokerage accounts is not recommended if you have an estate plan in place. In fact, the designation of a beneficiary on those accounts can have significant detrimental effects on a well-conceived estate plan, including a shift in the overall distribution of the estate and an undesired shift of the estate or inheritance tax burden. In some cases, if accounts pass directly to beneficiaries designated on the account, there will be insufficient funds to satisfy other bequests under the Will.

We have noticed an increasing number of inadvertent beneficiary designations by our clients. We strongly encourage all of you to check with your financial institutions to be sure that there is not a beneficiary designation on any accounts other than retirement plan accounts. We further urge you to review all beneficiary designations on your life insurance policies and retirement plan accounts to be sure they are consistent with your wishes and with your current estate plan. We are happy to assist you if you have questions about the proper titling of your accounts and your beneficiary designations.