What Happens If Your Estate Plan Doesn’t Have a Beneficiary?

What happens when you don’t name a beneficiary? What if you pass away, leaving real estate, cash, stocks, or other assets without a named heir? You might be surprised to learn that without designated beneficiaries, your estate can become entangled in legal processes that can take months or years to straighten out. In this blog, we will explore what it means to have an estate without a beneficiary, the impact on asset distribution, and specific steps to prevent your estate from ending up in probate limbo.

At Bespoke Estate Law, we help families create wills, trusts, and handle other elements of estate planning in Wilmington, NC and the coastal Carolinas. Even if it may seem too early to worry about estate planning, it’s not - the sooner you get the ball rolling, the better.

Beneficiaries in an Estate Plan

Beneficiaries are the individuals or entities designated to receive assets from an estate. They may inherit property, bank accounts, life insurance proceeds, or other assets as specified by the estate plan. Naming beneficiaries helps clarify how assets should pass, and it will minimize legal battles among your heirs. Naming beneficiaries also helps to avoid probate—a court-supervised process of distributing assets—which can be time-consuming, public, and costly.

Having clear beneficiary designations means your assets will transfer directly, often much faster than they would through a will alone. Beneficiary instructions provide direct instructions to banks, insurance companies, and retirement account institutions. Do your heirs a favor, and speak with an estate planning attorney to ensure that your beneficiaries are set up correctly.

What Happens If There is no Beneficiary?

When an estate asset lacks a named beneficiary, that asset typically enters the probate process. This brings your estate under the oversight of the probate court. Without a will or clear beneficiary designation, the probate court distributes assets according to the state’s intestacy laws.

What are intestacy laws? They are laws that specifically dictate who will inherit your assets based on familial relationships, prioritizing close family members like spouses and children. In cases where there is no immediate family, the state searches for more distant relatives who may not be known to you or may live far away. This can take months or years, and assets can diminish due to legal fees and court costs.

Even worse, your property could end up in the hands of someone that you would have preferred not to inherit. You will also be placing a great deal of pressure on your heirs, since they don’t know your passwords, bank account numbers, and other details.

The Impact on Specific Types of Assets

Some assets are harder to distribute than others. Retirement accounts, such as 401(k)s or IRAs, have specific tax advantages that change when they pass through probate. Normally, a named beneficiary can inherit retirement funds and manage them based on required minimum distributions. Without a beneficiary, however, the account becomes part of the estate and loses special tax treatment.

Life insurance policies also experience delays without a beneficiary. Insurance companies typically pay directly to the named person, but when the policy lacks a beneficiary, the funds pass to the estate and may require probate. The distribution of real estate, as well, can be more complex without a designated recipient.

Naming Backup Beneficiaries for Greater Security

Don’t forget about backup beneficiaries! If you name only one person as a beneficiary, they might pass away before you, become unable to inherit, or disclaim the inheritance. By naming secondary or contingent beneficiaries, you can add a safety net to your estate plan.

For example, if you list your spouse as the primary beneficiary of your retirement account but also add your children as contingent beneficiaries, the account will transfer to your children if your spouse predeceases you.

Making Updates to Avoid Problems

Life changes quickly, and updating beneficiaries should be part of any routine estate plan review. Major life events like marriage, divorce, births, or deaths affect who you want to inherit your assets. Outdated beneficiaries, or missing designations altogether, can send your assets to someone you no longer want involved. We highly recommend regularly reviewing and updating your estate documents under the guidance of an attorney.

You will also need to check if your financial institutions require specific forms for beneficiary designations. Some require updates through their own paperwork rather than relying on a will, so verify that your instructions match the requirements of your bank, insurance provider, or retirement plan administrator.

Avoid Probate with Proper Designations

Many accounts, like bank and investment accounts, allow a transfer-on-death (TOD) or payable-on-death (POD) designation. Assets held in trust also avoid probate, since they transfer to beneficiaries under the terms of the trust. It is your duty to help your heirs avoid probate and a lengthy legal process by setting up proper designations.

Work With an Experienced Estate Planning Attorney

If you live in South Carolina or North Carolina, Bespoke Estate Law can create for you a rock solid estate plan that reflects your wishes. Our estate planning lawyers assist clients in Myrtle Beach, SC, Wilmington, NC, and the surrounding areas by crafting tailored estate plans that prioritize ease and clarity. Anything from trusts to wills and other estate planning vehicles, we are here for you.