Keep Track of Your Beneficiaries

Who is going to get what you someday leave behind in life insurance policies and/or tax-deferred retirement accounts? Beneficiary designations are important estate-planning tools and should not be overlooked to make sure your hard-earned money gets passed down to those you select to receive it. Below are nine beneficiary “need to knows”:

Beneficiary Types- Beneficiaries inherit assets when people die. Typically, they are people or organizations that people care deeply about (e.g., spouse, children, charitable organizations).

Beneficiary Use- Beneficiary designations are required for life insurance policies, individual retirement accounts (IRAs), employer retirement savings plans (e.g., TSP, 401(k)s, and 403(b)s), and annuities so that proceeds can be transferred to beneficiaries free of probate.

Contingent Beneficiaries- It is wise to name contingent beneficiaries in case beneficiaries pre-decease you or wish to disclaim an asset, typically for tax planning purposes. If there is no living named beneficiary or contingent beneficiary(ies), assets have no place to go but to the owner’s estate, which means going through probate and expensive estate settlement expenses.

Minors as Beneficiaries- In many families, the beneficiary is a spouse. Absent a spouse, many people name their children. However, property inherited by minors can be tricky. A guardian must be appointed by the court to manage assets of minor children until they reach legal age.

Beneficiary Changes- Beneficiary designations can be changed as needed. With employer-sponsored retirement plans, workers should contact their plan administrator or HR department; life insurance policy owners, their insurer; and IRAs and annuities, the plan custodian.

Reasons for Change- It is not unusual for people to change beneficiaries several times throughout their lifetime. For example, they might name parents as beneficiaries as a young adult and switch to naming a spouse or partner later. If that relationship subsequently ends, they may need to name a new beneficiary again.

Keeping Track- It is easy for busy people to lose track of who they named as beneficiaries. Reviewing documents is not high on their priority list. The downloadable form, Beneficiary and Personal Representative Designations, is useful to list beneficiary designations in one place.

Sharing Information- Let trusted people know you’ve compiled your beneficiary designations in one place and share a copy with them. After all, it will do nobody any good if you compile this information and nobody knows that it exists. Not having beneficiary designation data readily available can result in needless expenses and/or time delays in the distribution of assets.

Factors to Consider- When selecting beneficiaries, consider their resources and characteristics by answering the following three questions: What are their financial needs? How old and self-sufficient are they? and Are they capable and mature enough to manage money?

Appropriate and up-to-date beneficiary designations are an important part of financial planning. Well-designed estate plans can reduce administrative expenses and prevent family squabbles after someone is gone. When people make careful designations of beneficiaries, they can, not only can keep the peace, but make people and/or charities very happy for many years to come.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.