Who Wins?

The Estate Planning Game You Didn’t Know You Were Playing

Takeaways:

• Beneficiary designations typically override wills and accounts with beneficiaries avoid probate.

• State laws may protect spousal rights regardless of beneficiary designations.

The Million-Dollar Question: Will vs. Beneficiary Designation

This article caught my attention as it dealt with family dynamics and estate planning.

‘I’ve opened a hornet’s nest’: My mother-in-law lists my husband as beneficiary on her $1 million IRA. But her will does not. Which wins?

The headline like it was a test question designed for me: Which wins the cash: the named beneficiary or the heir in the will?

My guess: the named beneficiary.

Estate Planning's Secret Game of Rock-Paper-Scissors

The question stirred memories of playing Rock-Paper-Scissors.

In both, there’s logic to who wins but there’s not an obvious hierarchy. You learn the unique rules, apply them, and then consult an attorney just to make sure!

As a refresher, Rock-Paper-Scissors is a short game in which participants choose one of these objects and present their choice using the specified hand signals (a fist represents a rock; an open hand, paper; and two fingers poised for cutting, scissors).

A grown-up explanation of the rules:

1. Rock wins against scissors.

2. Scissors win against paper.

3. Paper wins against rock.

As kids, we’d describe the winning logic in this way:

• Rock hurts scissors

• Scissors cuts paper

• Paper covers rock

No matter how much I puzzle over this game’s rules, I can never define the clear winner for every situation.

How the Money Game Works: Rules of Inheritance

When I consider people passing along money to others after their deaths, I think of the various rules that apply.

In the case of the mother and son in this article, the son appears to be the named beneficiary. Funds from the retirement account (IRA) pass outside of probate, which deals with assets specified in the will. Even if the will names siblings as heirs, the will’s specifications don’t reach outside of the probated estate and affect the IRA’s beneficiary.

So, the named beneficiary wins against the heirs of the will.

Plot Twist: When Spouses Change the Game

There are community-property provisions in some state laws that wouldn’t pay all IRA funds to a named beneficiary – if there is a surviving spouse. That is, the surviving spouse could tie against a named beneficiary if the spouse hadn’t signed a waiver giving up spousal rights and the state law supported this claim. (See this article for a discussion of this topic.)

As a layperson, I’d need to consult an attorney to sort through these nuances, as I imagine estate attorneys have deep experience in playing Beneficiary - Heir - Spouse.

• Named Beneficiary wins against an Heir in the will.

• Spouse wins against the Named Beneficiary (sometimes).

Again, no matter how much I puzzle over this game’s rules, I can never define the clear winner for every situation.

The important thing here though isn’t about winners or losers; it’s about honoring the wishes of the beloved and making sure the legal documents match these desires.

Don't Leave Your Legacy to Chance

Just like in Rock-Paper-Scissors, passing down money has its own set of rules—rules that aren’t always intuitive.

Estate planning isn’t just about having a will—it’s about understanding how different legal instruments interact. If you're unsure how the rules apply to your own situation, it’s worth getting professional guidance. After all, no one wants their final wishes to come down to a game of chance.