If I name beneficiaries for my bank accounts, should I include them in my will?

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Question:

If I fill out a beneficiary form for my stock, IRA, or bank account (to avoid probate), should I name the beneficiaries in my will, too? Or will that only muddy the waters? Also, does naming beneficiaries for these accounts help with the overall estate taxes if they are not listed in the will?

Answer:

Your instincts are right -- naming beneficiaries in two different ways will only confuse matters after your death. It's better to designate beneficiaries on the forms provided by the institutional custodians of these accounts (such as the bank) and leave them unmentioned in your will. (For other arrangements better made outside a will, see  What a Will Won't Do.) As you may already know, you can designate POD (payable-on-death) beneficiaries for bank accounts (the bank will provide the paperwork) and TOD (transfer-on-death) beneficiaries for your stocks (ask your broker or the company for forms).

Leaving these items in this way, not in your will, will avoid the expense and delay of probate, but it will have no effect whatsoever on the amount of estate tax, if any, owed. The IRS doesn't care how you leave property -- it's only interested in how much you leave. More than 99% of estates, however, do NOT owe federal estate tax--so unless you're one of the wealthiest Americans, you don't need to be concerned.

More information on estate tax.

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