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How do beneficiary accounts work in estate planning?

Many people think that drafting a will is the first step toward estate planning. But, for many California individuals, the estate planning process actually began when they opened a bank account, life insurance policy or other account with a beneficiary designation. When people name beneficiaries to their accounts, they may be helping themselves with the planning process. However, a wrong or outdated designation could be bad news when it comes to executing an estate down the line.

Accounts that may have a beneficiary designation include but are not limited to:

  • Retirement savings, such as 401(k)s and IRAs
  • Life insurance policies and contracts for annuities
  • “Transfer on Death” bank accounts
  • Pension plans

Retirement-related accounts are the most likely to have a beneficiary listed, but other types of accounts may provide for this, depending on who it is and the account type. For the most part, it is helpful to have accounts with beneficiary designations as they allow account holders to go around the probate process, which can save both time and money. However, if the wrong name is designated — for example, a former spouse’s name that was forgotten and never changed — there could be some additional legal steps and complexities. For this reason, it is important to ensure the names listed on these accounts align with what is written in one’s will.

Adding a beneficiary to accounts with this option is usually easy. It can often be done online or through a quick call with the bank or company involved. A California lawyer should also review all designations to make sure the will he or she is helping to draft aligns with the decisions listed on the accounts.

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