You may own various assets that allow you to execute a beneficiary designation, naming a loved one or multiple parties who will receive the assets after your death. Assets that may have beneficiary designations include life insurance policies, bank accounts, investment accounts, annuities, and pensions. Beneficiary designations can provide an alternative to passing assets outside of the traditional probate process. However, you can include specific provisions in your will that address assets with beneficiary designations. But which provision of your estate plan wins out?
Why Beneficiary Designations Usually Win
Probate assets include any assets in your estate that pass according to the terms of your will after your death. However, you may also own non-probate assets, which pass according to the terms of a contract or title. Assets with beneficiary designations, like life insurance benefits or financial accounts, pass according to the beneficiary designation you make rather than the terms of your will because the institution with which you have a contract (e.g., an insurer, bank, or retirement plan administrator) must transfer those assets per your contractual instructions. Those assets never become part of your estate subject to the terms of your will.
Texas Tools That Also Bypass Wills
Other estate planning tools can pass assets outside the probate process, such as:
- Transfer-on-death deeds: A transfer-on-death (TOD) deed passes real estate interests directly to a beneficiary after the owner’s death, overriding any conflicting provisions of the owner’s will.
- Lady Bird deeds: A Lady Bird deed allows a real estate owner to name someone who automatically inherits the property after the owner’s death, although the owner retains full control over the property during their life (including the right to sell the property)
- Living trusts: Assets a person places in trust during their life do not become part of the person’s probate estate after death and instead pass according to the trust document.
When Does a Will Come into Play During Estate Administration?
A will can affect assets that may have beneficiary designations in certain circumstances, including:
- The asset owner never executed a beneficiary designation, in which case the asset passes to the owner’s estate after death
- The beneficiary designation names the asset owner’s estate
- The named beneficiary predeceased the asset owner and the beneficiary designation did not name a contingent beneficiary
In these circumstances, the assets become part of the probate estate and pass under the terms of the owner’s will (or intestate succession laws if the owner has no will).
Texas-Specific Considerations
Under Texas Family Code § 9.301 and Texas Estates Code § 123.151, an asset owner’s beneficiary designation naming their spouse ceases to be effective upon the couple’s divorce, unless the divorce decree expressly names the ex-spouse a beneficiary or the asset owner executes a new designation naming their ex. However, ERISA-governed plans may continue to pay a named ex-spouse after divorce.
Imposing beneficiary designations or other contingent transfers of assets considered community property under Texas law may trigger significant legal complications if a surviving spouse resists the transfer.
The unique aspects of Texas family and estate law can cause significant disputes among family members of an individual who passes away with potentially defective or confusing beneficiary designations for their assets.
Contact Our Estate Planning Law Firm Today for Guidance
When you own assets that allow beneficiary designations, naming a beneficiary can streamline the distribution of your wealth after your death. Contact Guest & Gray today for a free consultation with an estate planning lawyer to learn more about the effect of beneficiary designations and whether you should incorporate them into your estate plan.
