Why You Should Review Your Beneficiary Designations Regularly

The beneficiary designations on your financial accounts allow your assets to pass quickly, efficiently, and without much administrative burden. They can be extremely useful. Typically, the only document that’s required to initiate the transition is a death certificate.

The advantage of assigning a beneficiary on your accounts was magnified during the pandemic. With the courts backlogged, passing assets under the direction of a will took months. There’s also the cost difference. You can add a beneficiary to your financial accounts yourself, for free. In contrast, the process of your heirs going through probate isn’t just time-consuming—it can get expensive.

Where Problems Arise

Your beneficiary designation must be kept up to date. As I’ve seen all too often, beneficiary designations made at account opening frequently go untouched for the life of the account. Research indicates that the average adult uses the same primary checking account for over a decade. That’s a long time!

When your life situation changes, you need to change your beneficiary with it, or it’s possible your designations may cause more harm than good. For example, your intended heirs may see your money go to a former partner you’re no longer with, or see it go to a niece rather than to your own child, who happened to be born later. Let’s avoid these errors!

When a Beneficiary Designation May Not Be Effective

There’s another aspect to consider: the beneficiary designation is not built for complexity. In certain special scenarios, the outright distribution of assets that characterize the passing of funds to a beneficiary may not work for you. For instance, a one-size-fits-all approach may not work when there are two classes of beneficiary—let’s say an adult beneficiary and a minor beneficiary.

Whenever there are special circumstances, you should approach the designation carefully, ideally with the help of a professional. This is when you should consult your adviser and possibly your attorney to make sure you have addressed the situation properly. A little effort now will save a lot of headache later.

Beneficiary Designations Supersede All Other Planning Documents

Another wrinkle: if you’ve spent time and money carefully setting up your estate plan, know that your beneficiary designations must coordinate with your wishes. For the accounts with named beneficiaries, the money passes to those designees, regardless of the specifications in your will, your trust, or other planning documents.

In short, your designated beneficiary for each account overrides your estate plan. So, once you’ve completed your estate plan, do yourself the favor of adjusting your designees to match.

Pitfalls of Leaving the Designation Blank

In some cases, the failure to designate a beneficiary creates an unintended effect. This is because each financial institution has their own forms and policies. In some instances, these have a default option that’s different than the intestacy statutes of your jurisdiction. That default option will be overriding. So, if you don’t read the fine print, it’s possible assets might inadvertently pass to an unintended party. As a result, please be sure to review the rules of each institution where you leave the beneficiary blank. And, know that leaving the form blank should be a very intentional choice on your part. It should be done rarely!

A Little Work Now Makes It Easier Later

Your circumstances may change from year to year. These changes are multiplied when compounded over the course of a decade. Reviewing your beneficiary designations helps you see if your plan still makes sense—and it may prompt a change.

While reviewing your designations annually may be a bit bothersome, it’s worth it. In the long run, you will be able to ensure that your wishes are carried out – and it will make life a lot easier for your heirs. And those are your two goals, after all.