What are beneficiary designations and why do I need to keep them updated?

Beneficiary designations exist for many financial instruments.  Most commonly they are found on retirement accounts, life insurance policies, and bank accounts.  Keeping your beneficiary designations updated is a big part of estate planning and something I discuss with all my clients.

The way beneficiary designations works is that you name a person to whom you want the proceeds of that account to go to when you pass away.  After you are deceased, the account either passes to that person “in kind” or the assets are liquidated and that person gains ownership of the account.  “In kind” means that they pass to the next person the same way they were before passing away.  For instance, if it is a stock portfolio, then the stocks would not be sold, but instead ownership is passed to the next person for them to decide on what to do.

The biggest benefits of having beneficiary designations is that the proceeds go directly to whom you want them to go to instead of being caught up in probate.  This is important because whoever is the beneficiary gets the assets more quickly and without the same hurdles as having a court decide what and who the proceeds go to.

It is important to keep your beneficiary designations current.  You should check your accounts every few years or as things change in life.  People change their minds about friends and family all the time.  If you forget to change a beneficiary designation, then there is no way for the bank, insurance company, or financial institution to know your intentions even if they are written out in a will or trust.

A good time to check the designations are when you have major life changes such as marriage, divorce, birth of children, and death of relatives.  If you need assistance figuring out how to change your designations, please don’t hesitate to contact me.  We can also discuss other estate planning concepts and issues.