Designating a beneficiary on accounts is one of the most important—yet one of the most frequently neglected—financial planning tasks. Put simply, a beneficiary refers to who will receive your assets upon your passing. Typically, you can name any person or entity a beneficiary of a trust, will, life insurance policy, annuity, or another financial account, and properly naming your beneficiaries is one of the most significant steps you can take to ensure your assets are transferred to the right people when you pass. In terms of your accounts, here are five important factors to consider when electing your beneficiaries:
1. Don’t leave your beneficiary form blank, and don’t name your estate as your beneficiary.
Failing to name an individual, or individuals, as your beneficiary/beneficiaries could deprive your heirs of inheriting your assets. The reason you wouldn’t name your Estate is because, without a beneficiary – such assets would default to the Estate, going through the lengthy probate process and may be subject to creditors.
2. Make a beneficiary designation for each retirement account you own.
People often make the mistake of assuming that the beneficiary they name on one account will dictate who the beneficiary is on their other accounts, but that is not the case. You need to have a valid beneficiary on file for each account.
3. Remember that beneficiary designations take precedence over wills.
Assets are distributed according to the named beneficiary, regardless of any other agreements, such as wills.
4. Keep your beneficiary designations current.
Many people fail to update their beneficiary designations after major life events, such as a marriage, divorce, or new addition to the family. You want to make sure your desired loved ones are set up to inherit your assets.
5. Consider consulting a professional.
You may wish to seek the guidance of an experienced attorney, CPA, or financial advisor to help you optimize tax implications and make the best choices for you and your heirs.
By properly naming and keeping your beneficiaries up-to-date, your beneficiaries will be able to inherit the assets intended for them directly without having to deal with the courts and a probate process that could leave your assets in the hands of the wrong people.
