Typically, the beneficiary designation on an account is more important than your will. For instance, if your will says to split your retirement fund between your two children but your ex-spouse is named as your beneficiary, your ex is going to get the money.
As you can see, it is crucial to know how these accounts work. Below are four questions you may have:
Can money go directly to children who are minors?
Generally, you need to give the children guardians to assist them. If you do not, leaving money directly to them can be problematic and the court may step in.
Do you need multiple beneficiaries?
It may be wise. You want to make sure the money goes to someone, even if the person you originally chose passes away. For instance, if you choose your spouse and then you both die in the same car accident, you need a backup plan.
Can retirement funds be paid out in cash?
They can, but remember that they lose their tax-deferred status when this is done. The person who gets the money has to pay a portion in income taxes.
Do the same rules apply to life insurance policies?
They do. You need to pick a beneficiary and be very careful to update your paperwork any time something changes — such as the death of a spouse or a divorce.
The key here is to make sure you understand what legal steps to take and when to take them. Do not just do estate planning and forget about it. Stay active and update documents as needed.
Source: Voya, “Beneficiaries: Who Gets Your Assets?,” accessed April 20, 2018