What if an unmarried person has a trust with a life insurance (beneficiary to sister), an investment account (beneficiary to brother) and a house (beneficiary to mother), but stated in the trust that her sister entitled the entire estate. At death, how do these assets distributed?
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Hi @A11! Good question, but I might need to clarify something. A trust is stating the sister is entitled the entire estate? Typically, estates are divided according to instructions in a person’s will, not a trust. Did you mean will?
A quick answer to your question - trust agreements only control assets owned by a trust, so they only dictate where those assets go. Trust agreements do not have any influence on assets outside of the trust. Beneficiary designations (typically known as TOD - transfer on death - designations) typically override any instructions in a person’s will, so assets with beneficiary designations will usually be paid directly to those beneficiaries.
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Yes, Brandon. It’s a trust and all 3 assets are listed inside the trust. The question is particular asked how the assets are distributed on death of the grantor which is the unmarried woman. One additional fact listed in the trust saying the sister is entitled to all estate except each asset has it’s own beneficiary assigned within the asset. The line threw me off is the sister entitled the entire estate. In this scenario, will the assets still be distributed to the designated beneficiary? How does the line stating the sister is entitled the entire estate apply?
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Beneficiary designations generally apply no matter what a trust agreement or a person’s will states. These are signed agreements between the account owner (which may be considered the trust), and the company that maintains the account. This Business Insider article says something similar:
A will or a trust controls what happens to your assets like bank accounts, investments, real estate, and possessions if you pass away. However, life insurance is outside of a will or trust. You have to update your life insurance beneficiaries even if you update your will. Life insurance beneficiaries are final.
I would argue it works this way even outside of life insurance. Beneficiary designations are final. In order for a trust to control where assets go, the trust must be the listed beneficiary.
I hope this helps!
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Brokerage accounts, like retail bank deposit accounts, should not have an option on the documents for listing beneficiaries. The B/D I work for and all the direct accounts we open with various custodians don’t allow for trust/estate accounts to list beneficiaries because if an account registration is a trust, then it’s expected to designate its own beneficiaries. For Individual and joint accounts (presuming both joint owners pass away), beneficiary designation will 99% of the time override any Will that would identify a different beneficiary because contract law is the higher authority and a Will can’t supersede a contract that was previously signed by the decedent.
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Hi @Marlon_Lind - your broker-dealer is likely implementing company-specific policies to disallow beneficiary designations. However, this absolutely can be offered as an option. For example, Fidelity, my former employer, allows beneficiary designations via transfer on death (TOD) designations on individual and joint brokerage accounts. If a Fidelity customer wants to list their estate or a trust as the beneficiary of their accounts, they can do so. Sounds like your firm maintains a different policy.
Beneficiary designations override wills in virtually all settings unless a court order says otherwise.
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