The Importance of Beneficiary Designations 

If you own an annuity, life insurance policy, or retirement account; you are probably familiar with the concept of a beneficiary designation. Rather than transferring assets through a probate process, which take up time and additional costs, a beneficiary designation allows you to transfer assets directly, bypassing the probate process.

In some cases, more value passes by beneficiary designations than under a will. Beneficiary designations are easy to make and relatively easy to change. Despite their convenience, they are often overlooked. Neglecting your beneficiary designations might mean that assets that typically avoid probate may become part of your estate and are subject to the associated time and costs of that process. Making and maintaining your beneficiary designations allows you to show your love, appreciation, and support for those important to you.

Beneficiary Basics

You can name almost anyone or anything as a beneficiary, including individuals, charities and trusts; keeping in mind a few cautions. In most instances, you cannot name children under majority age (age 18 or 21, depending on your state of residency) as beneficiaries to life insurance policies, retirement plans or annuities. If the beneficiary you have in mind has special needs, you should think about the impact it could have on government-provided benefits, or if they will intellectually be able to manage the assets. In such cases, consulting with an estate planning professional is highly recommended.

Keep Current

Beneficiary designations generally go into effect immediately following your death and override your will, which could significantly impact on your loved ones. For example, if you marry and divorce, then re-marry and forget to change the beneficiary on your life insurance or annuity, your new spouse would not receive those assets despite the fact that your will states you want everything to go to him or her. Also, if your primary and contingent (secondary) beneficiaries predecease you, and you haven’t updated your beneficiary designations, the asset may pass to your estate where it will become subject to probate.

To help keep your beneficiary designations current, refer to this checklist:

• Review designations on an annual basis, perhaps around the time you do your taxes.
• Review designations after any major life event including: marriage, divorce, birth or adoption of a child, death of a loved one (spouse, parent, sibling or cherished friend), or change in employment or financial status.
• If you or your employer have switched retirement plans or insurance providers, be sure to check with the new provider which beneficiary designation they have on file. What you had with the previous provider may not have automatically transferred over to the new provider.

Consequences of Not Naming a Beneficiary

If you neglect to name a beneficiary on nonretirement assets, the asset will typically be added into your estate will be distributed according to your will. Retirement assets, such as a 401(k), are more intricate. If you have not named a beneficiary for your retirement assets, the assets will be distributed according to the administrator’s plan document. If you are married, they may go to your spouse; if you are not married, they will go to your estate. Similar results may occur if your named beneficiaries (primary and contingent) predecease you and you haven’t updated your designations.

SOURCES:

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Gracio Garcia is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS) 160 Gould Street, Suite 310, Needham, MA 02494, (781) 449-4402. Securities products/services and advisory services are offered through PAS, a registered broker-dealer and investment advisor. Field Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. The Bulfinch Group is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency, LLC, an affiliate of The Bulfinch Group, LLC. The Bulfinch Group, LLC is not licensed to sell insurance.

PAS is a member FINRA, SIPC. 2016-28749. Exp 9/18