While your Will or Living Trust controls who receives assets from your estate, beneficiaries designated on a financial institution’s beneficiary designation form controls who inherits from accounts like IRAs, 401(k)s, life insurance proceeds, and annuities by-passing your Will or Living Trust instructions. Designating beneficiaries with the financial institution ensures that these accounts will go where you want them to go.
A popular planning strategy, particularly if you want to avoid your beneficiaries inheriting in a lump sum, is to create a Living Trust to put stipulations regarding when trust beneficiaries can receive their inheritance, and then naming your Living Trust as the beneficiary of your financial accounts.
Having all your financial accounts designating your Living Trust as the beneficiary will keep your estate choices centralized in your Living Trust and you will only need to update one location. In many cases, financial institutions only allow one level of beneficiary designation, with this approach the Living Trust will provide you with a robust set of contingent beneficiary rules.