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Planning for Special Circumstances

Who Are Your Beneficiaries?

by Rania Combs

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Who are your beneficiaries? When was the last time you updated your beneficiary designations? If you’re like most Americans, it’s probably been a really long time!

I recently updated my own estate plan. As part of the process, I reviewed the beneficiary designations on file with my financial institution. I know I listed my husband’s birthday correctly a couple of years ago, but something was haywire – the designation indicated he was born in 1889! 

A grieving spouse called me. She had been married for just a few years and had a new baby. Her husband had acquired an insurance policy before they got married and named his brother as the beneficiary. He never updated his beneficiary designations. When he passed away suddenly and unexpectedly, the proceeds of the policy passed to his brother, not his wife and new baby.

A friend’s parent recently passed away. Decades ago, he had created a revocable trust and named the trust as the beneficiary. Things changed. He revoked the trust but forgot that he had named the trust as the beneficiary. The beneficiary of the insurance policy was a revoked trust, which created a complexity that could have been completely avoided if he had double-checked his beneficiary designations regularly.

Whether because of institutional mistakes, life changes, or changed estate plans,  beneficiary designations can become inaccurate or outdated. That’s why it’s important that you regularly review your beneficiary designations to ensure they reflect your wishes for those assets.

Below are some important things to remember about beneficiary designations:

  1. Unlike assets such as real estate, assets such as bank accounts, insurance policies, or retirement plans for which you have named a beneficiary do not have to go through the probate process. The proceeds of those accounts, policies, or plans will be delivered to the beneficiary upon presentation of the death certificate and verification of the beneficiary’s identity.
  2. Regardless of what you say in your Will, your beneficiary designation will control. It doesn’t matter if your Will says that your wife will inherit everything in your estate. If you identify your brother as the beneficiary of that insurance policy, your beneficiary designation will trump your Will.
  3. Naming a minor child as a beneficiary of an insurance policy or retirement plan is usually not a good idea. Minor children don’t have the legal capacity to own property. As a result, those assets would be subject to guardianship and the beneficiary will have full access to the funds upon attaining 18 years, regardless of how much is in the account or whether the beneficiary has the maturity to handle the property. Having those assets funnel to a trust you’ve created for your minor children is a wiser choice. Your attorney can instruct you on how to do this.

Coordinating beneficiary designations is an important part of any estate plan. So if you haven’t checked your designations recently, make a point of reviewing them at your earliest convenience.

You might be surprised at who your beneficiaries are!

This article was originally published on April 15, 2015. and updated on September 29, 2022.

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