As a general rule, an estate plan helps govern what happens to specific assets when someone passes away. If a parent has a bank account with a certain amount of funds in it, for example, they could use their estate plan to mandate that the funds be split equally between their adult children. Estate plans can also help pass on tangible assets such as family heirlooms, homes and other real estate, vehicles, collections, jewelry and more.
But in some situations, a beneficiary designation may override an estate plan. If there is a conflict between the two, the beneficiary designation may take precedence.
Life insurance policies
One example of this is a life insurance policy. A policyholder is required to name a beneficiary when taking out the policy, and that is who will be paid by the life insurance company.
For instance, a parent may take out a life insurance policy when their first child is born and name that child as the sole beneficiary. In their estate plan decades later, they may state that the payout should be split between their two adult children. However, the insurance company will still pay the primary beneficiary, who can then decide whether to share that money with their sibling.
POD accounts
Another example is a payable-on-death account. This is very similar to a bank account, but includes a beneficiary designation. Once the original account holder passes away, the named beneficiary becomes the new owner of the account. This means that a POD account often skips probate entirely, so anything written in the estate plan would be ignored. The beneficiary would simply own any funds within that account.
Creating a comprehensive plan
This shows how conflicts can sometimes arise as assets pass through probate. It is important to know how to create a comprehensive estate plan to avoid these conflicts and what legal steps to take to resolve them if they do occur. If you’re in charge of an estate, legal guidance can help you diffuse conflicts and make sure the estate is properly handled.
