The impact of company benefit plan designations on your estate plan

Over the course of your life, you’ll make many important financial decisions that impact your future and the futures of those you love most. You may have even made some of these decisions on your first day of work, when you were handed a plethora of paperwork by someone from human resources and asked to make benefits selections. In addition to choosing healthcare or dental plans, you may have also been instructed to designate primary and secondary beneficiaries for company plans, such as life insurance, stock options, or a 401(k) plan.

If you’ve created a Last Will and Testament, it’s possible that your attorney asked you to make other important decisions, such as how you want to distribute your assets and who will serve as guardians for your children. Upon completion of that process, you may have walked away with a feeling of peace and accomplishment that you’d taken an important step in protecting your loved ones.

That will is a powerful thing. Upon your passing, it’ll outline how, when, and to whom your assets will be disposed. It’ll also name the executor of your estate, who will submit your will for probate — the process where the proper court will ensure its legitimacy and administration.

But there’s something important you need to know about your will.

While it may control the disposition of your assets, it does not control all of them. Some assets, including those that have joint or survivor ownership (such as your home or bank and investment accounts) are not considered part of your probated estate. Furthermore, assets such as your company’s life insurance, stock options, or retirement plans — the plans on which you named beneficiaries — are also not part of it.

How does that impact your estate planning?

To determine that answer, you must reflect back on the beneficiary choices you made on your first day of work. Perhaps you chose your spouse as your primary beneficiary and your children as secondary beneficiaries. Those designations may very well align with the wishes outlined in your will. But suppose something were to happen to your spouse. Your assets would then pass to your secondary beneficiary (your children) either immediately or when they reach the ages of majority (18 or 21). Is that in accordance with your will? Or did you plan for your children to receive distributions later on in life when they may have the maturity to manage that money?

This is often a great concern for those who hold senior level positions with companies and have a large portion of company stock. As such, a larger percentage of their assets could pass directly to their children. This may not align with the instructions included in their wills to dispose assets over time when their children reach certain ages, such as 25, 30, and 35.

To ensure your wishes for your estate and your loved ones are carried out, your company benefit plan designations should be aligned with your will and other estate documents. I recommend speaking with your financial planner or estate attorney and reviewing your selections and goals. Changing beneficiaries takes little time and may very well be one of the most important financial decisions you’ll make.

Working alongside a financial professional can help you navigate the future and reach your potential. To learn how our Wealth Advisors can help you, please call 1.877.670.5400, or visit us online.