Beneficiary Under a Magnifying GlassThe assets that get passed on to others upon your death consist of more than just what you include in a Will or Revocable Living Trust. Any account or policy that requires you to name a beneficiary will be processed when you die and distributed to the person or people you named.

So what happens when the beneficiaries you named can't be located or have already died when your Estate is probated? This happens more often than you might expect. Sometimes people lose track of the various accounts and policies they have with beneficiaries. For example, you might have named beneficiaries on documents when you started a new job decades ago and forgotten about them. Or perhaps you are aware of the accounts you have, but it didn't occur to you to change the beneficiary when that person died or dropped out of your life.

If this happens, someone else will get the money, and it might not be the person you would have chosen.

Who Gets the Money When a Beneficiary Is No Longer Available?

If you leave behind assets with beneficiaries when you die and those beneficiaries have died before you, the money in the account—or death benefit in the case of a life insurance policy—will most likely be paid directly into your Estate. That means that the assets will have to go through Probate Court and could be tied up for quite some time. It will be up to a judge to determine who will inherit these funds. If you die without a Will, then the money will be distributed according to Texas intestate laws.

How to Avoid Problems With Beneficiaries

Beneficiaries on accounts and insurance policies can be changed at any time, so it's important that you take that step if your beneficiary has died or you have changed your mind about who you want to name. It is also important that you name at least one secondary beneficiary on every account you have to give you a buffer if you don't make the change right away or you forget about the account. Ideally, you will name two or three backup beneficiaries. When you work with an Estate Planning attorney to write a Will, establish a Trust, and organize other important documents, they will walk you through all of your existing assets and help you update beneficiaries and add additional names.

What Kind of Accounts Require Beneficiaries?

The following assets have named beneficiaries that should be reviewed and updated periodically:

  1. Life insurance policies. Life insurance policies require the designation of a beneficiary to receive the death benefit upon the policyholder's passing. The named beneficiary can be an individual, a trust, or an organization. It allows for the efficient transfer of funds outside of probate and ensures the intended recipient receives the proceeds.
  2. Retirement accounts. Accounts such as 401(k)s, IRAs (Individual Retirement Accounts), and pension plans often require the naming of a beneficiary. This designation allows for the seamless transfer of the account's funds to the chosen beneficiary after the account holder's death without going through probate.
  3. Payable-on-Death (POD) bank accounts. A POD bank account is a type of bank account that allows the account holder to designate a beneficiary who will receive the funds remaining in the account upon the account holder's death. The named beneficiary can simply present identification and claim the funds, bypassing probate.
  4. Transfer-on-Death (TOD) investment accounts. Similar to POD bank accounts, TOD investment accounts, such as brokerage accounts or stocks and bonds, allow for the designation of a beneficiary. Upon the account holder's death, the assets are transferred directly to the named beneficiary, avoiding probate.
  5. Trusts. Trusts are estate planning tools that can hold various types of assets, including property, investments, or bank accounts. By designating beneficiaries in the trust document, the assets held within the trust can be transferred to the beneficiaries according to the trust's terms, bypassing probate and providing additional control and privacy in the distribution of assets.

We recommend keeping a list of these kinds of accounts and their beneficiaries in a place where you will remember to review them and update the accounts as necessary.

Lisa B. Shoalmire
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Attorney And Senior Partner