Where you’re standing right now, you probably have a number of accounts
with beneficiary designations. But, when was the last time you took a
fresh look at those beneficiaries? If you hurriedly scribbled down your
spouse or children decades ago, there’s a good chance they need
some updating.
If it’s been more than five years since you updated your
beneficiary designations (it might have even been decades), it’s important to review your
beneficiary designations on all applicable accounts, such as:
- Life insurance
- Bank accounts
- Brokerage accounts
- Pensions
- 401(k)s and IRAs
- All other applicable assets
“Why should I put my life on hold to review my beneficiary designations?”
Because, there’s a good chance that some of these beneficiary designations
were established many years ago and your life circumstances may have changed
so the old designations no longer apply to your present-day wishes.
My advice is to consider all of your beneficiary designations whenever
a major life event takes place, whether it’s good or bad. Often,
beneficiary designations change in times of celebration and tragedy. That
said, here are four reasons why your beneficiary designations should be
treated with the respect they deserve:
1. Beneficiary designations clarify who exactly gets how much.
A lot of people quickly scribble their spouse or children’s name
without putting much thought into it because death seems far off. But
in reality, beneficiary designations are very powerful and they let you
determine who gets what. A simple name and signature placed by you can
mean tens of thousands of dollars if not more to one of your loved ones.
2. They allow you to divide money however you please.
Contrary to popular belief, you don’t have to divide the money straight
down the middle. You can divide the money however you want. For example,
you can give 70 percent to your daughter because she stays in touch with
you and 30 percent to your son because you never hear from him. So, if
you prefer one beneficiary over the other, you can reward him or her with
a larger slice of the pie.
3. Beneficiary designations supersede a will.
Beneficiary designations not only supersede your will, but they avoid
probate. So, if you state in your will that your Aunt Pam will get the cash in
your savings account, but the beneficiary designation on the account says
your sister will get it, Aunt Pam will have to step aside for your sister.
4. They let you have a backup plan.
In the paperwork for beneficiary designations, there is a section called
“contingent beneficiaries,” which is your backup plan, your
Plan B. So, if your beneficiary passes away before you do, the contingent
beneficiary will receive that person’s share.
Related:
Importance of Updating Beneficiary Designations
My advice is to review your beneficiaries whenever there is a birth, divorce,
death, or other major change in your circumstances. When you keep your
beneficiaries updated, it saves your family a lot of trouble and paperwork later.