The Importance of Updating Beneficiary Designations

Every year, Americans leave financial assets to unintended heirs due to outdated beneficiary designations. Yet, there’s a simple solution.

Over a lifetime, many people open multiple savings accounts, insurance policies, annuities, investment accounts, Individual Retirement Accounts (IRAs), and 401(k) or 403(b) accounts. When filling out the paperwork for these accounts, you are asked to designate a beneficiary to receive the funds after your death. While a married person often has the presumptive right to act as a beneficiary to their spouse’s accounts, an account holder is able to choose a family member, friend, trust or charity instead.

Since some accounts may be several years old, if you haven’t checked your beneficiary designation since the account was opened, it may not be consistent with your current intentions or life situation.

It’s a good idea to check your beneficiary designations following any life-changing event—a marriage, a new baby, a divorce or a death in the family—or at least every year, especially if you have plans or policies with several companies or providers. Here’s why:

Beneficiaries take priority over your Will.

Many people incorrectly believe a Will governs the disposal of retirement assets. Instead, retirement accounts are “non-probate” assets that are not controlled by one’s Will or other means of estate planning. Rather, upon the account holder’s death, the proceeds of these accounts are distributed to the individual(s) listed as the account’s beneficiary. If you intend for your money to go to a certain person after your death, it is critical to name them as a beneficiary, as the named beneficiary on certain accounts will often trump what is written in your Will.

You may want to change your beneficiaries.

It is important to update your designations after major life events because failure to update this information can cause an unintended and potentially uncomfortable distribution of your assets, such as the account balance going to an ex-spouse.

A beneficiary may not have been designated at all.

Many times, a beneficiary has not been designated. If you do not designate any beneficiaries or all of your primary and contingent beneficiaries predecease you, your surviving spouse generally becomes your beneficiary. If you do not have a surviving spouse, payment of your account is made to your estate with potentially unfavorable tax consequences.

Make sure your loved ones receive your assets as you intended. At Jemma Financial, we can help you check your financial accounts to make sure your beneficiaries are up to date. Contact us to get started.