It’s a New Year…Review your Beneficiary Designations!

  By Daniel Dorval, CFP® | January 23, 2019

It’s a commonly known fact that we are all going to die someday, and someone is going to get our money whether that be your spouse, your kids, or your pets. Unfortunately, we sometimes forget who we set up to get our retirement plans or life insurance proceeds.  We recently met with someone whose situation reminded us how important it can be to periodically review beneficiary designations on any investments you may have.

This woman is single and wanted her two favorite nieces to get her retirement plan money. She wisely met with an attorney who helped her draft a particularly complicated beneficiary designation as part of her overall estate plan. Her beneficiary was an educational trust that was designed to specifically pay for K-12 educational expenses…but there was a little problem because her oldest niece is now 22 and in her last year of college! She had completed the beneficiary paperwork a long time ago and had forgotten what she had done. We run into this type of thing more often than you might think, so we want to take this opportunity to remind everybody to periodically review their beneficiary designations.

Beneficiary designations might seem easy for those who are married because they are usually naming their spouse as the primary beneficiary, but even then, there might be times where you might want to make other considerations. Depending on the ages of your children, it might make sense to name them as contingent beneficiaries. In some cases, it might make more sense not to name them. In the case of a second marriage, naming your new spouse could even have the potential to completely disinherit children from a prior marriage. That is usually not the intent, but it happens if things are not set up right!

In the case of divorce, we often see the ex-spouse still named as the primary beneficiary. Sometimes this is on purpose, but most times, they think their ex is about the worst possible person to get their money! They either forgot to update the beneficiary or thought they had updated it and didn’t. In employer sponsored plans like a 401k or 403b, it is common to see people update their information with HR when they have a major life change and think that changes everything they have through work. However, this is usually not the case. You have to specifically change the beneficiary designations on your retirement plans, including any pensions, and that is often the last thing people are thinking about when they are experiencing the emotional trauma of a death or divorce.

For single individuals without children, the beneficiary question can become even more complicated. We suggest you start by asking, “Who do I want to get my money,” and then we can help you figure out the best way to name your beneficiaries to accomplish that goal. It is important to understand a beneficiary designation actually supersedes a will. It doesn’t matter what your will says if your beneficiary designation names someone different.

So, log in to your investment accounts and look to see if your wishes are up to date. It really should be quite an easy thing to check off your New Year to-do list! If you have any questions, we would be happy to help you along the way. Lastly, if you want some incentive to take action… reviewing beneficiaries could serve as the perfect time to remind your spouse, children, or cats that if they want any of your money someday, they better be on their best behavior!