5-Minute Fixes: Review Beneficiaries on Financial Accounts

April 16, 2020

It’s National Healthcare Decisions day but I feel like I’ve talked about advance care planning enough in the last few weeks. Let’s take a break and do something “easy”, shall we? This week, let’s take five minutes and review the beneficiaries on our financial accounts (and update them!) 

Beneficiary designations and property titles define how financial accounts are inherited. They pass “outside” of a will or trust so it’s important that they are set up “correctly” (that is, according to your wishes.) 

What Type of Accounts Need Beneficiaries

You’ll want to designate beneficiaries on each and every account where you have to option to do so. Types of accounts that allow you to define beneficiaries include:

  • Insurance policies
  • Investment accounts
  • Retirement accounts (traditional IRA, Roth IRAs, SIMPLE, SEP)
  • 401(k) or 403(b) accounts
  • Pensions or other employer retirement plans 
  • Employee stock options
  • 529 education accounts
  • Health Savings Accounts (HSA)
  • Any accounts designated as transfer on death (TOD or POD accounts)

Who (or What) Should You Designate as the Beneficiary?

This is totally up to you! Some people designate siblings, spouses, children, or a combination of all three. Others designate their trust as the beneficiary of their accounts. You can choose someone to receive all the funds in an account, an equal portion divided between several people (known as “per stirpes”), or a specific percentage. I have no opinion and offer no advice here. Just know that you have flexibility.

How to Update Beneficiaries

It’s never been easier to update your account. In many cases it’s as easy as logging into your account online, typing in a few form fields, and hitting submit. (You’ll need the legal name and social security number of the people you designate.) If the institution doesn’t allow you to change or assign beneficiaries online, check their support pages or call them to find out how to get the Change of Beneficiary or form. 

Can You Assign a Beneficiary for Property? 

Some states, like Illinois, allow for the transfer of property on death. This allows you to retain ownership and control while you are alive and then transfer ownership to the beneficiary you name after you die. You’ll need a legal form (like this one from Nolo.com) to set up the beneficiary but once in place, it avoids having to go through the probate process. If you consider this approach to transferring property, do it in the context of a holistic estate plan

Common Mistakes When Designating Beneficiaries

You probably designated a beneficiary when you opened the account, but how long ago was that? And when was the last time you updated them? Here are some of the most common mistakes: 

  • Out-of-date beneficiaries If you want your prior spouse to inherit your assets, that’s fine. Just don’t do it by mistake. One of the most common mistakes regarding beneficiary designation is not updating your designated beneficiaries after a divorce, death, or other life change like the birth of a child. If this is you, just stop reading here and go take care of it! 
  • Incomplete beneficiary designation Don’t forget to name beneficiaries for all of your accounts. It’s easy to overlook the smaller or less frequently used accounts that accumulate over time. For example, I had overlooked designating beneficiaries on my Health Savings Account until recently. 
  • No contingent beneficiaries You may have assets that ‘just sit’. I have two life insurance policies (long story) but I don’t log in very often. What’s to look at, right? Well, the last time I logged in I discovered that one of these policies was missing contingent, or backup, beneficiaries. Ooops! 

If you know who you want to inherit your money, put the infrastructure in place to make that happen. You can make good progress on this in five minutes. I know, because I’ve done it myself!

A few clicks and it’ll be fixed! 

Karen Purze

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Karen Purze

About the Author

Karen Purze

Karen Purze is the author of Life In Motion: A Guide for Gathering Life’s Vital Details, a workbook to help people get their affairs in order. She blogs about end-of-life and emergency planning at lifeinmotionguide.com.

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