Listen to Lawrence…Which takes priority: beneficiaries listed in your will or on your bank accounts?

December 11, 2020
Dear clients and friends,
Here is another one of your questions and my response:
If the beneficiaries differ in your will versus what is listed on banking, savings and investment accounts, which takes final priority?
The quick answer is the latter. The way I like to think about it is that your will transfers your assets that don’t know where to go. For example, if you have a bank account in your name alone, upon your death, who should the bank give the money to? Can the surviving spouse just march into the bank and collect the money simply because she is the spouse? The answer is no! The banks are worried that if they give her the money, someone else may claim that they should have received it and then the bank would be liable. So, the bank or brokerage company wants some legal authority to give the money or account to the next rightful owner. Without some legal instruction, the will would have to be probated.
If the account is joint with someone, then the bank or investment company has written legal instructions to give the money or investment to the joint owner.  If the account names beneficiaries, then the bank or investment company has written legal instructions to give the money or investment to the beneficiaries. In these two situations, assets would legally pass without using the will, which means we would avoid probate, at least as to those accounts.
Clearly, if the assets pass automatically, then the will has no power over those assets. This is true even if the will states that the money or account should go to someone else. The will is only probated when there are assets that don’t know where to go.
Notwithstanding what I just said, sometimes people put a person (like a child) jointly on their bank accounts for convenience purposes, to allow the joint person to access the account to pay bills. In such cases, the person who set up the account may never have intended the joint owner to inherit. If that is the case, the law permits you to mark the joint account as a “convenience account,” but many forget to do so. This can lead to lawsuits where one child claims the account at the time of the parent’s death and the other children claim that the account was for convenience only and their sibling is stealing the money. Ugh! This is rare because most families just work it out but yes, IT CAN GET UGLY!
The bottom line is to be very careful and properly coordinate how you set up your accounts with the contents of your will.
I hope this helps! Please forward this information to your friends and relatives.
As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
Stay safe!