Why Beneficiary Designations Matter More Than You Think

When it comes to estate planning, many people believe that their will or trust serves as the definitive guide for asset distribution. However, beneficiary designations on financial accounts often take precedence over what is stated in your estate documents. This critical detail can significantly impact your loved ones and your legacy.

Beneficiary designations apply to various types of accounts, including retirement plans like 401(k)s and IRAs, life insurance policies, annuities, and certain investment or bank accounts. These designations legally determine who receives the assets directly, allowing them to bypass the probate process. This makes them one of the most efficient ways to transfer wealth, but it also creates a potential for costly mistakes.

Common oversights include having outdated beneficiaries following life events such as marriage, divorce, or the birth of a child, missing contingent beneficiaries, or failing to coordinate these designations with your overall estate plan. An outdated designation could inadvertently leave assets to an ex-spouse, exclude a new child, or disrupt carefully crafted tax and inheritance strategies.

Regularly reviewing and updating beneficiary designations should be an essential part of your financial check-ups; it isn’t just a “set it and forget it” task. By aligning these designations with your estate plan, you can help ensure that your assets are passed on to the intended recipients in the desired manner with minimal delays or complications.

If it has been more than a year since you last reviewed your beneficiaries, or if you have gone through any significant life changes, it may be time for an update. Your advisory team can assist you in this process to ensure your wishes are consistently reflected across all accounts.