Broker Check

Double Check Beneficiary Designations

| November 04, 2021
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In past posts, we always make it a point to emphasize the importance of double checking beneficiary designations regularly to make sure they are up to date and reflect your current wishes. Can you remember the last time you’ve done that? Unfortunately, it’s something that is easily forgotten about or overlooked, yet can lead to big headaches down the road for heirs.  

Double Check Beneficiary Designations

I can’t tell you the number of times I’ve looked over an account statement for a client who holds an account outside of our management and seen “No Beneficiary On File” written right on the statement! When I ask the client about it, usually the reaction is one of surprise. Most mistakenly believed they had designated a beneficiary sometime in the past. Maybe they had, but it never got properly processed. This is why it is important to double check beneficiary designations regularly. Another situation that I encountered recently was with a client who had an old 401k plan that he wanted us to review. Upon reviewing the statement, I noticed his ex-wife was still listed as his beneficiary. When I inquired about it (thinking maybe it was a requirement of his divorce) he was shocked and said it should not be his ex-wife and he would be updating it ASAP. What surprises me about these examples, is that the company actually lists the beneficiary information right on the statement. Sometimes the information isn’t so readily available, as some companies don’t list beneficiary information on their statements. A good exercise would be to list all assets you own that have beneficiary designations attached to them (examples include retirement accounts, life insurance, annuities, etc.). Then write down (and confirm directly with the respective company) the current beneficiary designation(s). I emphasize making it a point to confirm directly with the company, don’t assume.

Another common misconception I encounter is people mistakenly believe that even if they have outdated beneficiaries listed on assets, it’s no big deal because their will or trust will supersede these “outdated” beneficiaries. This is not true. Beneficiary designations will almost always supersede what is written in estate planning documents like a will. All the more reason to double check to make sure beneficiary designations are up to date and align with your current wishes.

Consider Adding Contingent Beneficiaries

If you have made a list of all the assets you own that have beneficiaries and confirmed that the primary beneficiary (or primary beneficiaries) is up to date, that’s a good start. You may want to take it one step further and consider adding contingent (or secondary) beneficiaries. A contingent beneficiary would be entitled to inherit the asset if they outlive your primary beneficiary or the primary beneficiary is unwilling or unable to receive the asset for some reason. Let’s look at the example of spouses Bob and Sally. Bob and Sally each name each other as 100% primary beneficiary on their assets that have beneficiary designations, but they don’t list any contingent beneficiaries. If they were to both pass away simultaneously (i.e. an auto accident), then their assets will be treated as essentially having no beneficiary listed at all (since they were both listed as each other’s 100% primary beneficiary) and will likely be payable to their respective estates (not ideal). Had they each listed a contingent beneficiary (or contingent beneficiaries) on the respective assets, then the contingent beneficiary (or beneficiaries) would have been able to inherit the assets and avoid probate. Adding contingent beneficiaries provides an additional level of planning and thought as to where you ultimately would want your asset(s) to go if the primary beneficiary (or primary beneficiaries) was unable to inherit the assets. Keep in mind that contingent beneficiaries should also be reviewed frequently, just like primary beneficiaries.      

Who Can Be Named a Beneficiary?

While we most often think of naming individuals as beneficiaries, beneficiaries can also be non-natural entities like charities, non-profits, or maybe a trust you’ve established. A financial professional or estate planning attorney can help guide you through the pros and cons of naming certain types of beneficiaries (individuals or otherwise) on certain types of accounts. However, just keep in mind that you don’t have to name solely individuals.   

While it may seem like an administrative nuisance to contact companies and confirm your current beneficiary designations, it is important to keep them up to date. Things and circumstances can change over time (marriage, divorce, deaths, births, etc.). Keep in mind that it is your money, and the beneficiary designations are your way of being certain it goes to where you want it to go.

Securities and Advisory Services offered through LPL Financial, member FINRA/SIPC, a Registered Investment Advisor. LPL Financial and Croxall Capital Planning do not provide tax or legal advice.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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