Beneficiaries and You: Transferring Money Outside the Will


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Most people are aware of the importance of a Will and try to update it every so often so it stays in line with your wishes. But keeping your beneficiaries updated on accounts like IRAs, 401(k)s, life insurance, and bank accounts is just as important and frequently overlooked.

Beneficiary designations on these accounts bypass and take priority over the Will. The decisions you record on beneficiary forms can be easily changed and updated as needed, but once you pass they can’t be contested. The end result is a fast transfer of money exactly to who you choose without all the fuss that can often surround executing your Will.

Life Insurance: Beneficiaries Bypass Will & Probate

We see too many people end up leaving their money to an ex-spouse or deceased relative. Don’t let that be you. Check your Beneficiary Designations regularly!

What is a Beneficiary?

beneficiary is simply “a person who receives a benefit.” In this case the benefit is the money you are distributing after you die. While the Will can take care of any assets that don’t have a beneficiary designated, it is much faster and clearer to assign beneficiaries to any and all accounts and assets that let you.

We recently helped the daughter of one of our clients who had passed. The daughter called in looking for help to claim a life insurance benefit her mother had left for her. Hans called in to the insurance company with the daughter, and in one phone call the insurance company was able to see the daughter was the listed beneficiary, find an obituary online for the mother, confirm the daughter’s banking information, and send the payment right away!

Accounts that let you choose beneficiaries include IRAs, 401(k)s and other retirement fund accounts; life insurance and annuity policies; savings, checking, and other financial accounts – all the different ways you can store your money. Note: some financial accounts may use Transfer-On-Death (TOD) paperwork instead of beneficiary forms, but they are essentially the same thing. Assets that don’t have beneficiary designations include things like houses, boats, or other property.

You can (and should) choose at least one beneficiary for each account that lets you at the time that you open the account. After that, you can easily add, remove, or change your beneficiary choices at any time usually by filling out a form.

Who should be my beneficiary?

Married couples typically list their spouse as the primary beneficiary on all accounts until the first spouse passes. Of course, it’s also common to list children or other close family members. You can even list a church or other organization. You can make a choice about who you most want to have that part of your money.

When you are choosing beneficiaries, try to always list a contingent beneficiary in addition to the primary. Contingent beneficiaries do not get any money unless the primary beneficiary has died when it comes time to disburse the money. This is more common than you might think. Setting up a second-in-line puts everyone in a good position if you forget to update the paperwork later on. You can list as many primary and contingent beneficiaries as you like, so long as all the portions total to 100%.

We also recommend notifying your beneficiaries when you choose them, keeping this information with the rest of your estate planning documents, and telling one or several of your beneficiaries where these documents are. This can help streamline things when it comes time for them to receive the gift you are leaving them.

Listen to learn more about beneficiary designations:

When should I update my beneficiaries?

Any time you like! If you aren’t sure who is listed or if your opinions changed since the last time you updated your paperwork, we recommend you do a quick check instead of assuming things are fine (pro tip: if you think they might be out of date, they probably are).

Times in your life that might motivate updates include:

  • Births of children or grandchildren
  • Deaths (of an existing beneficiary or someone else important to your life)
  • Divorce or Marriage (your own or of an existing beneficiary)
  • Changes in situation for beneficiaries with special needs
  • Changes to your Will
  • Other major life events

This checklist created by Ed Slott can help you keep track of your beneficiaries and think about when it is time to update.

Not updating your beneficiaries can cause major headaches and undermine the plans you had for your money. Hans had a friend come to him for help whose stepmother had just died. The stepmother had been married to his father for a long time, and she had two daughters from a previous marriage. After she died, it turned out that she hadn’t updated her life insurance beneficiary, so the $100,000 benefit check went straight to the ex-husband who hadn’t been in her or her daughters’ lives for years. There was nothing we could do to change that, but Hans immediately went through the friend’s father’s designations and found they also hadn’t been updated from his own ex-wife. We helped him change that to split the future money between his sons and daughters instead.

Beneficiary designations sound like a lot of boring paperwork, but they are the true time-savers in the end. Do your heirs this favor and they will be thanking you twice. Cardinal can help you assess whether your accounts will be sending your money where you actually want it to go.

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