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The importance of correct beneficiary designations

Retirement accounts, life insurance and annuities are probably not controlled by provisions in your will. Why is this? These types of accounts and any other designated “payable on death” or “transfer on death” automatically pass to a named beneficiary outside of probate.

You may change beneficiaries at any time. When it is time to change a will, it is a good idea to look at beneficiary designations as well. If you fail to make updates after a significant life change, it can easily result in unintended consequences.

Over the years

Consider when you start a new job, maybe you list a parent as a beneficiary for the employer-provided 401(k) or pension. This might be early in your career and it makes sense at the time. As the years pass, you may start a family and have children. Your parent might no longer be the best choice for beneficiary.

Funds in these accounts go straight to the named beneficiary when you pass away, rather than going through probate, which makes a mistake harder to dispute. If something were to happen, money might transfer to an elderly parent in a care facility rather than a spouse. And even worse outcomes have occurred (ex-spouse inheriting a pension or siblings inheriting rather than step children) and been upheld in court.

Double checking beneficiaries

After having a child, divorce, remarriage, death in the family or every five years as a general rule of thumb, it is good to take an inventory of your accounts with beneficiary designations. Then make a call to customer service or log into online portals to review the listed beneficiary.

On any account where the listed beneficiary is out of date, ask questions to find out how to make a change. A company might need a social security number and often a change request must be in writing. 

Do not make an easy mistake by having your money go to someone who you listed 10 or 20 years ago.

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