Family having a talk

The Importance of Beneficiary Designations

By:  Mary McCraw, CFP®

A well-crafted estate plan can ensure that your wishes are carried out with minimal hassles for your heirs.  People spend a lot of time and money putting an estate plan in place and often overlook an essential element: beneficiary designations.  Often, these are set-up when an account is first opened but never looked at again. 

Just like an estate plan, beneficiary designations should be reviewed after major life events.  Marriage, death, divorce, birth in the family or an updated estate plan are all reasons to take a fresh look.  Even without major life changes, it is good practice to review both your estate plan and beneficiary designations every 5 to 10 years. 

Which Accounts Need Beneficiary Designations

Most commonly, qualified retirement accounts and life insurance policies pass by beneficiary designation.  Any account which is solely in your name should have a beneficiary designated as well.  This includes checking, savings and investment accounts that are individually owned.  Banks typically refer to these designations as “transfer on death” (TOD) or “payable on death” (POD).  Another important bank item is a safe deposit box.  While beneficiary designations are not available for these boxes, it is important that you have at least one other person (typically your spouse or named Executor) on the box to ensure it can be accessed in the event of your incapacity or death.

Naming Beneficiaries

Who you name as beneficiary on an account will depend on your situation and goals.  We recommend consulting with an attorney to ensure that your designations align with your estate plan.  This is especially true if qualified retirement plans or life insurance represents the bulk of your estate.  We recommend naming a contingent beneficiary in the event your primary beneficiary predeceases you to avoid proceeds being paid to your estate.

Housekeeping Items

We recommend maintaining copies of all beneficiary forms in your files as well as confirmations that they have been processed.  If you do not receive a confirmation, we recommend contacting the company to confirm they received the request and the change has been processed.  Sometimes, the current beneficiary will be displayed in the online access for the account – making it easy to verify.  We also request you forward a copy of any changes to us, so that we can keep your file up to date. 

Beneficiary designations control the disposition of the account or policy it is associated with, regardless of what the will or trust says.  Therefore, it is crucial that these be complete, valid and coordinated with your overall estate plan.  In summary, a little time ensuring your beneficiaries are in order now can save loved ones big headaches down the road.


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