Beneficiary Designations: Still the Ones?

Your personal circumstances may have changed significantly since you chose beneficiaries for your insurance policies or retirement accounts. Beneficiary designations name the person or persons who will receive the account proceeds upon your death. Reviewing your choices annually should be on your year-end to-do list.

What Can Change?

Life events, such as divorce or remarriage, should trigger a review of beneficiary designations on insurance policies and retirement accounts. Why? Beneficiary designations supercede any instructions in your will. If you fail to change a beneficiary, the original beneficiary you designated will receive the proceeds -- even if you've named someone else in your will to inherit the account.

New Faces

As time goes on, you may want to include new people as beneficiaries. For example, you may want to name grandchildren as contingent beneficiaries. Contingent beneficiaries will receive the account proceeds if the primary beneficiary dies with you or before you. Alternatively, you might want to support a charity using life insurance proceeds.

Avoid Unintended Consequences

Equal (per capita) distribution is typically the default for retirement accounts, and this can result in consequences you didn't intend. Let's say you have three children who are equal beneficiaries of your account, and each child will get an equal share of the proceeds upon your death. But what if one of your children dies before you? Under per capita distribution, your remaining two children will share the account proceeds, potentially leaving the deceased child's own children (your grandchildren) with nothing. By specifying per stirpes distribution instead, a deceased child's share will go to his or her children.

Other Accounts

Financial institutions and insurers may offer an option to choose Transfer-on-Death (TOD) and Payable-on-Death (POD) accounts. These accounts allow the account holder to name who will receive the account balance or payout after death. The TOD option is often used for stocks, bonds and brokerage accounts, while a POD designation is generally used for bank accounts.

An Annual Review

Make a list of all accounts and policies that require beneficiary designations. Check them each year to confirm they're up to date.