Why the beneficiary designation is so important for your estate plan

When done right, estate planning is the greatest gift you can give your loved ones. Just as you wish for a smooth transition process for them, you also want to ensure your belongings go to the proper place after your passing.

How do you make sure that happens?

By implementing—and maintaining—beneficiary designations for your assets. Like checking your car every 5,000 miles, you should be reassessing your estate plan regularly. Keeping your beneficiary designations up-to-date now can save your heirs hassle and heartache later.

Starting to wonder if your designations need a refresh? If it’s been a while since you’ve thought about them (and for most of us, it has), no need to panic. Below I’ve outlined the who, what, and why of beneficiary designations to keep in mind during and after the estate planning process.

Still have questions about your designations? I’m only a phone call away, don’t hesitate to reach out.

What does it mean to be a beneficiary?

Your beneficiary designations are a critical part of your estate plan. When done with care, they ensure that your assets go to the correct people after your passing and aid in a smooth wealth transfer process.

Simply put, a beneficiary is a person or entity that receives assets from someone else.

Most of your assets will need some sort of beneficiary designations. These could include life insurance, other insurance policies, retirement accounts like 401(k)s or IRAs, real estate, annuities, and more.

In some cases, you may be required to include a contingent beneficiary as well. A contingent beneficiary is a person who would receive the assets should your initial or primary beneficiary pass away before you do.

Review your bank and investment accounts, as some accounts don’t require a beneficiary—though you can add one. In the case of accounts like these, joint ownership may also be a suitable option. Joint ownership would allow the other owner on the account to bypass the transition process altogether.

Can beneficiary designations be “one and done”?

Life would be much easier if that were so, wouldn’t it? Unfortunately, it doesn’t work to name a beneficiary in one spot and call it a day. Establishing an official beneficiary is a bit different than simply stating in your will that so-and-so receives such-and-such. Why? Because an official beneficiary can actually override what’s written in your will.

Instead, you should use your will to divide up personal property and valuables, such as art collections, books, jewelry, etc.

How do beneficiaries drive the wealth transfer process?

The people you name as your beneficiaries—not what’s written in a will—are the ones who will control the disposition of your 401(k)s, IRAs, and other retirement accounts.

For example, say you name your sister, Ruth, as the official beneficiary on your 401(k). But in your will, you wrote that your brother, Dan, should receive the account. In this case, the account’s value would pass to Ruth, not Dan.

Official beneficiary designations supersede what’s written in your will, meaning you’d better be sure Ruth is your intended heir. Remember to select your beneficiaries with thought and care and reassess them regularly.

What would happen if, in this example, you never named Ruth as the official beneficiary? The courts may turn to your will to decide who receives the 401(k) account funds. The courts may also consult your plan administrator’s rules, meaning you and your heirs may essentially lose control over who receives the assets.

An estate without designated beneficiaries may also be subject to the probate process, a rather time-consuming and costly public transfer of your assets. Having the proper designations in place can help prevent this and create a smoother transition process.

How often should you update your beneficiaries?

The answer to this question can vary, depending on your preferences and lifestyle. It’s essential to review your beneficiary designations after a significant life event, including:

  • Marriage
  • Divorce
  • Death in the family
  • Additions to the family (in-laws, adoptions, births)
  • Change in employment

Beyond that, it’s a good idea to give your designations a look over at regular intervals. Maybe you’d prefer to check at the beginning of every year, or every couple of years is often enough. The important thing is that you’re reviewing and regularly updating since your estate plan should evolve as you do.

Keeping your estate plan up-to-date

Beneficiary designations often fly under the radar, but they’re the glue that holds your estate plan together. If it’s been some time since you reviewed your own designations, Wealthcare for Women can help.

I offer women in retirement holistic financial planning focused on growing, preserving, and transitioning wealth effectively and efficiently.

If you’re interested in seeing how I may be of service to your financial life, feel free to schedule a time to talk. I’d love to help you ensure your estate plan is structured to support your legacy.

Thanks for reading!

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