401(k)s and similar accounts allow people to save for retirement throughout their careers. The use of tax-deferred accounts can help people limit their taxable income during their highest-earning years.
Many people aim to have at least a million dollars set aside for retirement. If people die before they use everything they saved for retirement, they may have specific people they want to inherit the remaining balance in the account.
A will usually isn’t the best way to ensure that the right person inherits a retirement savings account.
Account beneficiary designations make inclusion in a will unnecessary
It is standard practice for the companies that manage and invest retirement savings to allow account holders to name a specific beneficiary to receive the remainder of the account if they die before using everything they saved. Even those working for the state can select beneficiaries to inherit the account after their passing.
That beneficiary designation allows the account to bypass probate court, which protects the funds from creditor claims and other probate complications. If people attempt to include retirement savings accounts with transfer-on-death designations in their wills, the instructions and their wills may contradict the paperwork filed with the company or professional managing the account.
In that case, the designation paperwork, not the will, determines who actually receives the contents of the account. People may have disappointed expectations based on the will, and legal disputes within the family could arise.
Adults who have saved assertively to ensure their comfort during retirement may need to double-check their beneficiary designations and estate planning paperwork to validate that all documentation includes the same instructions and there are no contradictions that could cause disputes after their passing. Working with an estate planning attorney allows those with valuable resources to better ensure the appropriate descent of that property accordingly.