When was the last time that you checked all of your beneficiary designations? Beneficiary designations determine who gets certain financial benefits when you die. They are commonly found in workplace retirement benefits, life insurance policies, annuities, retirement accounts, pay-on-death bank accounts, and transfer-on-death investment accounts. It is important to check your beneficiary designations regularly because such designations can override your will. Otherwise, your loved ones may not know that there is a problem until it is too late.
So, how do beneficiary designations work? Let’s say that John Doe names his wife, Jane Doe, as the sole primary beneficiary of his IRA account at ABC Brokerage Company. When John dies, Jane notifies ABC Brokerage Company of John’s death. ABC Brokerage Company may request that Jane complete a simple form and send a copy of John’s death certificate. Once the appropriate documents are received, ABC Brokerage Company will retitle John’s IRA account in Jane’s name. After that, Jane can treat the account as her own. The entire process can take as little as a few days. There are no probate court proceedings involved in this scenario.
Who should you name as your beneficiaries? That depends on your wishes. Be sure to coordinate your beneficiary designations with your overall estate plan. As for beneficiaries, you can specify one or more individuals, an existing trust, a trust that will be created after your death by your will, a charity, or your estate. If you name a minor as a beneficiary, a guardian may need to be appointed to receive the assets on behalf of the beneficiary. If you name your estate as a beneficiary, the assets will need to go through the probate court process.
Check your beneficiary designations regularly! It is especially important to do so if you experience changes to your family situation.