When was the last time you looked at the beneficiaries listed on your accounts? Why should you even peek at them? (Spoiler alert: You should actually look at your beneficiary listings on a regular basis). Our clients are regularly asked about the beneficiary listings on their accounts, and often they don’t know and aren’t sure they even have a beneficiary listed. Sometimes, the question I get is “What is a beneficiary anyway?”. Do you know the effect of naming someone as a beneficiary on an account? Or what could happen if you don’t list a beneficiary at all?
What are Beneficiaries?
The beneficiary identifies the person who will receive the money in the bank account, the investment account, or the life insurance policy after the owner or the insured passes away. Beneficiaries are very important for estate planning purposes and can help avoid probate proceedings in the future.
There are few things in life I am willing to bet on, but I am willing to bet that when you set up that 401K with your job, they asked you to name a beneficiary and you did. The same is true with your life insurance policy – regardless of if it was through your employer or if it’s insurance you purchased privately – they asked for a beneficiary to be named when you purchased the policy. However, did you name a beneficiary on your bank account? Hmm, that’s a bit less clear. What about that online Capital One 360 account you started? How about that Acorns account that you started because it seemed like a fun app? I am pretty sure those accounts don’t have beneficiaries either..
Without a beneficiary, the asset will likely have to go through probate after your death (ugh – the dreaded probate word). But what if the beneficiaries listed aren’t updated and it’s the same people you listed 25 years ago when you started your job?
Next week, we will go through some of the big mistakes that can happen with beneficiaries, but for now, we encourage you to do a bit of homework about your beneficiaries.
What should you do?
Here are a few easy steps to be sure you are looking at your beneficiary listings on a regular basis.
- Make a list. Start by making a list of all of your assets including your investment accounts, your retirement accounts, and your bank accounts. This bit may take some time, but once it’s done, it will help you going forward, and it will help your loved ones locate your assets.
- Contact your financial institutions. Next, you need to contact the financial institutions for all of your accounts requesting that they send you documentation on the beneficiaries.
- Create a file for the documents. Once you have received the documents, we recommend keeping a binder or a file with those beneficiaries.
- Create a chart. On that chart, have the name of the account, the person named as a primary beneficiary, and the person named as the contingent beneficiary.
- Write the date you reviewed your beneficiaries. Then annually, pull out the file and double-check the listing on all of the beneficiaries. Perhaps one of the named beneficiaries passed away, or there was a change in their life circumstance and leaving them named as the beneficiary may not make the most sense.
We recommend having far more information on that chart than just the account and the beneficiary but start there. Some people check their beneficiaries on their birthday, their anniversary, or on tax day. Some people make it part of their New Year’s tasks. Whatever day works best for you, remember to check it. Proper naming of beneficiaries will help make sure that your assets are distributed to the right people.
If you would like more information, please contact us. There’s a handy link on the website.