The Importance of Estate Planning and Beneficiaries

Nate Levinson Life with Money

Estate planning is a vital piece of any financial plan. No matter how well a person has saved and invested their money over time, inaction or procrastination when it comes to wills, trusts, and beneficiary designations can have disastrous consequences. Without valid, up-to-date documents in place, one’s assets may be distributed in suboptimal ways – either because the intended beneficiaries don’t receive them and/or because they are subjected to unnecessary fees.

What Is the Probate Process?

When a person dies, their estate is “opened,” and the probate process begins. This process involves the disbursement of the deceased’s assets to creditors and beneficiaries under a judge’s supervision. If the deceased has a valid will, their wishes will typically be honored by the judge, unless the repayment of debts or taxes depletes what is left for heirs. A will may also be contested by anyone who believes they are entitled to more than what the will provides them, which can complicate and lengthen the process.

Probate law varies from state to state, but in general, assets that are subject to probate include anything left to an heir via a will or when no valid will exists. Additionally, any assets where the ownership is classified as sole ownership, tenancy in common (TIC), or community property (CP) will be allocated to heirs via probate.

The Downsides of Probate

While probate can fulfill a deceased person’s wishes for how their estate is dispersed, there are a few downsides – it can be very expensive (due to legal fees) and time consuming (if there are many competing claims from creditors and heirs, or many assets to sort through, etc.).

Additionally, the court proceedings are public record, so there is no privacy for the deceased and heirs in how property is doled out. So, it is often in one’s best interest to keep as much property out of probate as possible.

How to Avoid Probate

Common methods of avoiding probate include passing property “via contract” to named beneficiaries, as well as titling property in certain ways. Examples of contracts that bypass probate include life insurance, annuities, retirement accounts such as IRAs and 401ks, trust accounts, and transfer on death (TOD) accounts. A TOD account is essentially an individual investment account that has a beneficiary. If there is no living beneficiary named for these types of assets, they will be brought back into the probate process.

Another way to avoid probate is to change the titling of property to be owned jointly. With this form of ownership, when one property owner passes away, the other joint owner(s) automatically receive the deceased’s portion.

All these methods of bypassing probate allow the deceased person’s property to pass directly to their beneficiaries without the need for a court order. It is important to note that with these same methods, the beneficiary designations supersede the deceased’s will. If a will provides instruction for the disbursement of specific assets that are held in accounts that bypass probate, the will will be ignored when it comes to that property. Instead, it will pass directly to the named beneficiaries outside of the probate process. For example, if a person’s will says that they intend to leave their 401k to their son, but the named beneficiary of the 401k is their daughter, the daughter will ultimately receive the account if no changes are made.

How Park Piedmont Can Help in the Estate Planning Process

Some of the most important parts of any estate plan are wills, trusts, and powers of attorney. While Park Piedmont cannot assist with drafting these documents, there are a variety of ways in which we can aid in the estate planning process.

First, we can advise on the optimal way to set up and title accounts to best align with your needs. We can also help with converting individual investment accounts, which are a form of sole ownership, to TOD, Joint, or Trust accounts to avoid probate.

Finally, we can add, remove, or update beneficiary designations on the accounts we manage. Please reach out to your advisor to verify the beneficiary designations on your accounts are up to date and reflect your wishes. Or, see below for instructions on how to add or update a beneficiary in Schwab Alliance on your own.

[Note: Check out our Tax Cuts and Jobs Act update for insights into how federal legislation set to expire at the end of 2025 may impact estate planning and the income tax system more generally.]

How to Add or Update a Beneficiary in Schwab Alliance

Log in to your Schwab account at SchwabAlliance.com.

Login in Schwab Alliance

Click on the “Profile” tab in the top right corner, then select “Beneficiaries” from the drop-down menu.

How to Add or Update a Beneficiary in Schwab Alliance

Scroll to view your accounts. Click “Edit Account” to add or update your primary and contingent beneficiaries for each account.

How to Add or Update a Beneficiary in Schwab Alliance