Why Beneficiary Designations Are Important

Beneficiary designations can provide a relatively easy way to transfer an account or insurance policy upon your death. However, if you’re not careful, missing or outdated beneficiary designations can easily cause your estate plan to go awry.

We often complete these designations without giving it much thought, but they’re actually important and deserve careful attention. Here’s why: Beneficiary designations take priority over what’s in other estate planning documents, such as a will or trust.

For example, you may indicate in your will you want everything to go to your spouse after your death. However, if the beneficiary designation on your life insurance policy still names your ex-spouse, he or she may end up getting the proceeds.

WHERE YOU CAN FIND THEM

Here is a sampling of where you’ll find beneficiary designations:

• Employer-sponsored retirement plans [401(k), 403(b), etc.]

• IRAs

• Life insurance policies

• Annuities

• Transfer-on-death (TOD) investment accounts

• Pay-on-death (POD) bank accounts

• Stock options and restricted stock

• Executive deferred compensation plans

Because you are asked to designate beneficiaries on so many different accounts and insurance products, it can be difficult to keep up. However, it is worth the effort; failing to maintain the beneficiary designation on that 401(k) from three employers ago could mean money will go to the wrong place.

When you first set up your estate plan, go over all the designations you previously made and align them with your plan. After that, you should review and update them regularly—a least once a year.

NEXT STEPS

• When creating, updating, or simply reviewing your estate plan, pay attention to your beneficiary designations.

• Remember, beneficiary designations take precedence over what you may have specified in a will or trust.

• Put a reminder on your calendar to check your beneficiary designations annually so you can keep them up-to-date.