6 Tips How To Better Handle Beneficiary Designations

“Bear in mind the wonderful things you learn in schools are the work of many generations. All this is put in your hands as your inheritance in order that you may receive it, honor it, add to it, and one day faithfully hand it on to your children.”

Albert Einstein


Did you know many assets pass by beneficiary designations just by filling out a form?

Create your estate plan so that you have control over your asset distribution to your loved ones during your lifetime. Aim for your plan to be as litigation-free as possible. Beneficiary designations are an essential way to distribute most of your assets quickly and effectively.

You will avoid the often painful and lengthy probate court procedures. Your will doesn’t control who inherits all of your assets. In reality, the average person may transfer the majority of their assets by contract.

Transferring Assets Outside Of Your Will Is More Efficient

Many of our assets are non-probate property. As such, they are transferable to survivors by contract immediately upon death rather than under a will.

The advantages of contract transfer over the distribution of assets by a will are less time, cost, and privacy. Transfers to loved ones by a will could take six months to a year if there is no probate. If contested in court, the distribution could take longer. Even worse, your will would be made public through court documents.

We will explain how to make proper beneficiary designations to carry out your intentions. are carried out.

Three Ways To Transfer Non-probate Property: 

1.  Designated Beneficiaries Upon Your Death

A beneficiary is a person or organization designated to receive a benefit. You can and should also select a contingent (or secondary) beneficiary. Sometimes the first-named or primary beneficiary dies after filling out the form. Most of you have seen one, but here is an example of a form to select your beneficiaries for those who want to take a look.

We usually get the form from our employer insurance or a financial company. It takes only a few minutes to fill out yet carries significant repercussions if incorrectly filled out or ignored. That will be part of our upcoming discussion. You should name beneficiaries for all of the assets that you can.

Your non-probate property is assets that are transferred to survivors by contract upon your death to your designated beneficiary.

Check With A Professional On Legal And Tax Issues

There may be legal and tax ramifications to be aware of, especially your designated beneficiary is already receiving governmental benefits. Estate distributions to a beneficiary may require an inheritance tax payment in certain states but not from the federal government.

 Your Non-Probate Assets:

  • retirement accounts, including 401K  plans, 403b plans, SEPs, solo 401Ks, Keough plans, Roth IRAs, pension plans
  • 529 college savings plans
  • investment accounts, mutual funds accounts
  • payable-on-death clauses in bank accounts, credit union
  • life insurance policies or
  • by owning joint accounts with another person, usually a family member,  through rights of survivorship.

These assets are generally transferred directly to those beneficiaries that you designated 

When you first opened these accounts, you received a legal form to complete that provide you with the opportunity to designate your beneficiary.

Review Beneficiary Designations Periodically

For example, if you designated your mom when you first set up your accounts, it’s probably a good idea to refresh your beneficiaries. Often, life changes such as a divorce, remarriage, or the passing of a loved one happen, so update your beneficiaries. 

2. Property Ownership Designation

Husbands and wives (or parents and children) may have joint ownership of assets called joint tenancy with the right of survivorship.

Each person owns 100% of the asset. These include bank accounts, investment accounts, and cars. They can dispose of these assets without the approval of the other owners. However, in the case of jointly owned real estate, most states restrict the ability of a co-owner to sell or burden the property without the consent of the other.

Upon the death of one owner, the assets transfer on death (TOD). The surviving owner(s) will receive this property by operation of law rather than through the will.

3. Payable-on-death (POD) designation

Like TODs, the designated beneficiary has no right to this property, usually a bank account, until the owner has passed away. Once the owner has died, the beneficiary will provide a copy of the death certificate and show proper identification to access the account.

6 Tips to Ensure Your Designated Beneficiaries Are Proper:



1. Don’t Forget To Name A Beneficiary

We live busy lives. We get a ton of forms when we start a new job or open new accounts.  We may lose them or forget where we placed them. Worse yet, we honestly want to fill them out, but we are unsure or procrastinate over making such decisions. The form truly takes a few minutes, and it is better to reasonably identify a loved one rather than leaving the form blank.

The absence of a designated beneficiary may result in the respective assets going to the estate itself to be shared among several people rather than the sole designee.

2. Name A Contingent Beneficiary

Besides naming a primary beneficiary, it is essential to name a contingent beneficiary if the primary beneficiary has either passed away before the asset owner or has become incapacitated. It may have been several years since the designated beneficiaries were selected.

3. Reviewing, Changing, and Updating Your Beneficiary Forms

When you first start a job or open an account, you may have been idealistic about who you wanted to receive your assets. I have had friends select their boyfriends. Our lives go through many changes such as marriage, having children, divorce, and our interest in varying social causes.

If necessary, we need to periodically review, update our beneficiaries to who we intend our assets to go.

My First Designated Beneficiary

When I first started working after college, I named my brother Mark as a beneficiary. I was 20 years old, and he was starting high school. As a “big sis” starting work right after college, I wanted to do something special for him. Being naive, I thought he would like the gesture. I left the job 18 months later, so it didn’t have a lasting effect. However, many of our decisions do.

Common Mistakes: An Ex As Your Beneficiary But Your Youngest Isn’t Designated

Your former spouse may still be listed as a primary beneficiary even though you haven’t talked to that person in years.  If you are working at your company for a long time, you may leave out your youngest child or the children of your second spouse.

Review your beneficiary choices quickly online or through the investment account statements you receive in the mail.

Another reason to review your form may be that you have been at the same firm for 35 years (congratulations!). However, are you sure your company still has the form on file?

A True Story

Someone recently told me that a family member had newly been diagnosed with a severe illness. They wanted to make sure they had insurance for the upcoming surgery.  The company told him that there were no records of designated beneficiaries on file for the years he began working there.

Forms get lost when companies move, especially during the pre-digital age (after dinosaurs), and the company may not always convert the paperwork.

4. Be Careful When Designating Those With Special Needs

Three possibilities that need special consideration and requires the expertise of an estate attorney or accountant to consider:

Minor Children: Differences Between Probate And NonProbate Properties

We often may name our children as designated beneficiaries on forms and in our wills, for probate assets. Be aware of legal ramifications.

It is relatively common for parents to have testamentary trusts within their wills that assert minimum ages for our children to get assets. They may want to restrict their children well past the age of majority (usually 18 years of age) to 25 or 30 years. Testamentary trusts, traditionally contained in wills, are trusts that effective upon the death of the grantor.

A trustee is often used to administer the assets at their discretion until the beneficiary reaches that appointed age. That works for probate property.

Outright Distribution To Beneficiaries: Consider Age 

However, beneficiary designations for non-probate property, trump the will’s contents which may carry a parent’s intentions. That means if a parent passes while the children are of minor age,  property, such as an insurance policy or a bank account, will pass to them automatically at 18 years. Most young adults cannot handle significant funds without supervision. Although research shows an inheritance lasts five years, it can be much shorter in a younger individual’s hands.

Therefore, you may want to name the estate as your designated beneficiary rather than your children outright or create a living trust which can specify your children’s age. Your estate attorney can provide help in this area.

Background on Living Trusts

Living trusts are legal documents created during an individual’s lifetime. These trusts are standalone, that is, independent of the will. These instruments can take effect while the grantor is alive. The grantor is the one conveying the property to the heir. It can give the grantor the right to make changes.

These trusts are revocable living trusts, and the grantor can be the trustee. However, if the grantor cannot serve because of incapacitation, a spouse or child may become successor trustee. 


The Irresponsible Adult May Need Special Consideration

An adult child who is known for being irresponsible with money may need different treatment. In that case, you should speak to an attorney regarding the setup of a spendthrift trust.

A spendthrift trust benefits a person that is unable to control their spending. It gives an independent trustee full authority to make decisions on allocating money to the beneficiary.

Individuals With Disabilities

You need to be careful about naming a disabled individual as a designated beneficiary. You may jeopardize that person if they are already receiving governmental benefits, such as social security benefits. If they were to receive assets from your designation upon your passing, it might inadvertently prevent them from receiving further governmental aid.

5. Make Sure You Have Correct Spelling of Intended Beneficiaries

When designating an intended survivor, they may have a commonly misspelled name or a title like Junior, Senior, or the III after their name. Check that you are indicating the correct person. It is always wonderful to give to others but make sure it is the person you intend.

6. If In Doubt, File A New Form

Having correct and updated forms is very important, especially when you have retirement accounts, life insurance, bank, and investment accounts. If you think about the changes in your life in recent years, you may just want to go the easier route of filing a new form to transfer each of your assets outside of your will.

Final Thoughts

By keeping your beneficiary designations, and all of your estate planning documents current, you provide the best protection for those you care about the most. A small amount of your time and effort may cover the vast majority of your assets.

Protect your assets and have an excellent plan to distribute them to loved ones. You don’t want to add potential angst to their grief. Engage an accountant to help you realize tax efficiencies and estate attorneys for special situations.

Thank you for reading!

Have you started reviewed your beneficiary designations recently? It is usually easier to do when you have no urgent reason to do so but are thinking of your family’s best interest. Start thinking about your assets and which ones are non-probate property and consider reviewing them or file new ones.

Related Post: Your Guide To Basic Estate Planning In 6 Steps

Please share any thoughts or comments you may have. We would love to hear from you!



2 thoughts on “6 Tips How To Better Handle Beneficiary Designations”

  1. You make a good point when you mention how the name of your beneficiaries should be correctly listed without any errors. My uncle would like to create an estate plan so that his brother can inherit his property when he passes away, but he needs to make sure that his full name is listed properly since it was changed recently. Maybe it would be best for him to find an estate planning attorney to ensure that his beneficiary is properly listed.

  2. Hi Derek,
    Generally, beneficiary designations will trump the beneficiary in the last will and testament. It is always a good idea to ask a probate attorney from your state.
    Thank you for reading!


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