Don’t Make These Mistakes with Your Beneficiary Designations

There are financial accounts such as life insurance policies, 401k, IRA’s, etc.that allow you to choose the primary beneficiary(ies) and contingent beneficiary(ies), which means upon your passing the funds from these assets will pass directly those individuals listed.I always tell my clients to check the designations on these accounts to ensure:

1)They have a beneficiary(ies) listed


2)They have the CORRECT beneficiary(ies)

Clients forget that they haven’t updated an account after a beneficiary has passed away, they got divorced or broke up with their significant other.Or maybe they got married and forgot to remove their parents as the beneficiaries.

Many people assume that if they have a will or trust that the language in these documents controls how these particular assets will pass to beneficiaries.This is INCORRECT!The beneficiary designation is a separate contract between the account holder and the financial institution.So, this means if you have your children listed as the beneficiaries of your Will but your life insurance policy has your sister listed as the beneficiary…well that policy is going to your sister.

It never ceases to amaze me that some people have NO beneficiary listed on certain accounts when they pass away.In this situation, such asset is typically part of the deceased person’s estate and will be distributed according to their will or the Arizona laws of intestacy.However, typically with 401ks if no beneficiary is listed the plan determines where the money goes and that doesn’t mean that it will necessarily go according to the deceased person’s will.

For example:Jim passes away and his 401k has no beneficiary listed but he has a Will that leaves everything to his girlfriend and specifically disinherits his son.However, the 401k plan says that if no beneficiary is listed that such account shall be distributed to the account holder’s next of kin.In this situation Jim’s next of kin would be his son—the person he intended to disinherit!

It is clear that beneficiary designations are an important part of your estate plan.I encourage you to check your designations.

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