Understanding Beneficiary Designations

Written by: Jacob Brydels, Wealth Manager

Continuing off of last month’s article on the importance of obtaining your estate documents, this month’s topic is about the importance of listing beneficiaries on all of your assets.

Did you know that having properly designated beneficiaries listed on your accounts can avoid probate? In the event of someone’s passing, the account’s custodian (Charles Schwab, Vanguard, etc.) will distribute your accounts to these individuals or the entities listed. If the account is in the name of your Trust, then your designated trustee(s) will follow the rules of your Trust to ensure proceeds are distributed to your listed beneficiaries. Both listing beneficiaries or having the account in the name of your Trust can aid in avoiding probate. 

Have you ever heard of a POD or TOD? These stand for Payable on Death & Transfer on Death. Depending upon the type of asset, these different naming conventions will apply. Put simply, your bank accounts beneficiary(ies) are usually listed as POD and assets that have a title, such as a vehicle or property, will usually list the beneficiary as a TOD.

Again, listing PODs and TODs will also help your estate avoid probate. 

You may have also heard of a beneficiary deed, which may be also known as TOD or TODI (Transfer on Death Instrument). These come into play with any home(s) or property(ies) that you may own, if not in the name of a Trust, to avoid probate. In Missouri & Illinois, you will file your beneficiary deed with the Recorder of Deeds in the county where the property is located.

In general, assets such as a car, home, bank account, retirement account, life insurance, etc., must list beneficiaries to avoid probate court. While your Last Will and Testament acknowledges your assets and your belongings (heirlooms, furniture, jewelry etc.) and who you would like them to pass to upon death, a Will itself does not help in avoiding probate court.  It’s through properly listing beneficiaries or having your assets owned by a Trust that your estate can avoid probate.  If you do fail to designate a beneficiary on an asset, your Will can be filed in Probate court to get the asset to your intended beneficiary, but not without the legal expense of hiring an attorney.  

At Wheelhouse, we recognize the importance of having a plan with your assets and we want to ensure your assets are always where you want them to be both while you are living and after you pass.

The estate planning information provided is general in nature.  It is provided for informational purposes only and should not be construed as legal or tax advice.  Always consult an attorney or tax professional regarding your specific legal or tax situation.