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Beneficiary Designations: Common Mistakes to Avoid

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Posted on Oct 01, 2019 | Share this post: Like Us on Facebook Join Us on Google Follow Us on Twitter

Assets such as bank accounts, retirement plans, and life insurance policies have their own beneficiary designations, meaning that upon your death, a specific beneficiary will receive those funds. While beneficiary designations can be a useful way to pass on wealth, they can end in disaster.

Here are some common beneficiary designation mistakes and how you can avoid them:

1. Not Listing A Beneficiary. At first glance this may seem too obvious a mistake to make, but if you do not name a beneficiary, you may find yourself at the mercy of the account/policy’s default beneficiary. Of course, the default beneficiary could end up being who you wished to benefit in the first place; however, if you have the opportunity, naming your specific beneficiary makes this designation a lot clearer to the account/policy custodian and easier for transfer to the intended recipient. And, if it ends up that the default beneficiary is not who you wished to benefit, your wishes will not be fulfilled.

2. Outdated Beneficiaries. A quick google search is all that is needed to see how common it is to forget to update beneficiary designations and the consequences of this oversight. As a general rule of thumb, you should periodically review your beneficiary designations to make sure that they are current and reflect your wishes. Is there a magic number on how frequently you should review? No, but we recommend reviewing your estate plan (including beneficiary designations) annually. In addition, it is a good idea to revisit your estate plan and beneficiary designations if you or your beneficiary experiences a major life event (i.e., marriage, divorce, etc.).

3. Contingent Beneficiary. If your primary beneficiary predeceases you, most accounts and policies allow for a contingent beneficiary to be listed. While it may never come to pass, having listed a contingent beneficiary is worth the additional effort. Whenever reviewing your beneficiary designations, take the time to make sure that your contingent beneficiary designation is who you want it to be.

In conclusion, review your beneficiary designations and make sure they reflect your wishes. Generally, a good time to consider your beneficiary designations are when you open a new account/obtain a new policy, when you create or update your estate plan, and when you or your beneficiary experiences a major life event. If you are diligent in reviewing your beneficiary designations, you can spare your loved ones additional heartache and complications.