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5 Tips for Reviewing and Organizing Your Beneficiary Designations

Amy Peirsol, J.D., LL.M., CWS®

Director of Financial Education

Last Updated
August 31, 2022
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Why It’s Important to Update Your Beneficiary Designations

Have you ever wondered why people claim “the devil is in the details”? When it comes to beneficiary designations, this couldn’t be a truer idiom — an unsuspecting and seemingly insignificant detail can often be complex or create problematic consequences.[i] Having your estate plan in order is an important aspect of comprehensively managing your wealth; this includes executing the applicable estate planning documents. However, one highly important aspect of your estate planning is one easily overlooked – your account and policy beneficiary designations (BDs). Not giving your BDs the attention they deserve can result in unintended consequences and derail your dedicated efforts to execute an estate plan for the distribution of your assets.

The reality is, although you may have executed the applicable estate plan documents, it’s very likely many or most of your assets will not be distributed under the last will and testament or revocable living trust you may have executed. Assets held in certain types of accounts, or through life insurance policies, will be distributed according to the BDs on file. Because of the contractual nature of these BD-eligible accounts and policies, the BDs take precedence over any distribution plans under your wills and trusts in your estate plan.

The reasons BDs are often overlooked and not given the consideration due is threefold. First, BDs are completed in a piecemeal fashion at the time accounts are originally opened. Second, there are often no prompts given to review your beneficiaries over the years. Third, and possibly the easiest to avoid, BDs are not organized in a manner for easy review. By completing and updating the BDs on each account or policy, you may avoid these pitfalls:

  • Non-designated assets passing to your estate and becoming subject to costly and timely probate proceedings
  • Loss of favorable tax treatment
  • Thwarting of well-planned and complex distribution strategies
  • Assets passing to recipients not of your choosing

Thus, conducting a review of your BDs annually or upon life altering events is critical to your overall estate plan. Following are five important tips for doing so:

Tip #1 – Consider All Applicable Accounts and Policies

The accounts and policies you’ll want to review include, but are not limited to, the following:

  • Retirement Accounts – 401(k)s, solo 401(k)s, 403(b)s, 457 and other profit-sharing plans, traditional and Roth IRAs, SEP IRAs, and SIMPLE IRAs
  • Life Insurance Policies and Annuities – Term Life, whole life, universal life, fixed annuities, variable annuities and other insurance products
  • Other Employer-Sponsored Plans – Stock Options, restricted Stock, deferred compensation and defined-benefit plans
  • Banking (Payable on Death) and Non-Qualified Investment Accounts (Transfer on Death) – Checking, savings and brokerage accounts

Tip #2 – Engage Your Attorney or Wealth Advisor

Your attorney and wealth advisor can be instrumental in this exercise. Seek their advice on coordinating your BDs with your estate planning documents. Be careful naming your trust or estate as a beneficiary, as it may cause one or more of the pitfalls mentioned above.

Tip #3 – List Each Beneficiary Properly

Primary beneficiaries and contingent beneficiaries should be listed and include information to identify them accurately and easily. Although some types of BD-eligible accounts and policies provide default provisions if your BDs are incomplete or incorrect, such provisions should not be relied on, as they can be contrary to your well-designed estate plan.

Remember someone who has likely not met any of your beneficiaries and does not know their location or background will be reviewing and determining the proper distribution to each of them based on the information you provide on the BD form.

Missing or incorrect information such as full name, telephone number, Social Security number, email address, mailing address or relationship to you can impede the BD processor from making the intended distribution.

If you’re considering listing a trust as a beneficiary, consult with your attorney or wealth advisor as to the proper titling required to accurately identify the trust. And if you update your trust and the title changes, update your BD accordingly. Generally, if you’re revising your will and/or trust, review and update your BDs on all accounts and policies as needed to coordinate with your revised estate planning documents.

Tip #4- Use a Critical Eye

Read each BD form carefully on each account or policy, as they will vary from account to account and from policy to policy and may require different information. Does the way you listed your beneficiaries among your accounts and policies truly reflect the end result you intended for your plan of distribution, and is it well coordinated with your current estate planning documents?

Tip #5 – Keep Your BDs Organized

Just as there are many benefits to organizing one’s wealth management documents into one central place, organizing your BDs onto one document that captures an overall snapshot of your BDs as they relate to one another is fundamental. Such a snapshot allows for the easy review of them annually and upon life altering events.

What’s the best way to accomplish this? A well-devised financial plan will have a list of all your assets and liabilities. If you’re a client of Creative Planning, you’ll find this on your Personal Balance Sheet. This is a great place to begin reviewing those accounts eligible for BDs and the completion thereof.

Next, gather a copy of your current BD forms or request a blank BD form from the holder of your account or policy issuer. Once you have the information presently on file for your BD-eligible accounts or, if missing, the information needed to complete each BD form, use this handy template to diagram, coordinate, organize and review your BDs.

Organizing your BDs into a manageable snapshot provides these benefits:

  • It’s easier to review regularly and as needed
  • It gives your loved ones a succinct overview of your BDs on each account or policy in the event you become incapacitated
  • It gives your trusted advisors, wealth advisor, attorney, CPA, etc., complete information, which is useful when reviewing your estate plan and making recommendations to your comprehensive wealth management plan

By following these tips, you’ll should be able to better coordinate your BDs with your overall estate plan and avert unintended and costly consequences. If you would like assistance with this or any other financial matter, please schedule a call with a member of our team.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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