Imagine your ex wakes up one day to find they have received a lump sum payout from your retirement account. Or, imagine your younger child discovers that your life insurance policy has gone entirely into the bank account of their older sibling.
Both of these situations frequently happen because people forget to update their beneficiary designations. If you forget to update yours, those scenarios are entirely possible.
Instructions in a beneficiary designation override those in a will
If your beneficiary designations do not reflect your current wishes, any updates to your will be in vain. When you name someone as a beneficiary, it becomes legally binding. The company holding the funds must follow the instructions you set out.
If your retirement funds or insurance policy pays out to their listed beneficiaries, there’s nothing your heirs can do — even if those payments contradict your will.
When are beneficiary designations used?
Here are some of the financial accounts you should check to ensure your beneficiary designations are up to date:
- Retirement accounts
- Life insurance policies
Each of these generally requires a beneficiary listing, and they all need periodically updated.
What if I do not designate beneficiaries?
You might think you can avoid problems by not designating beneficiaries. That way, your assets would be distributed as per your will. However, your will may be subject to probate. It could delay the transfer of the assets to your family and put them at risk if someone contests the will.
Once you die, you cannot do anything about an erroneous beneficiary designation. Nor can anyone else. While the person benefiting could decide to pass the funds to your family as per your will, they are under no obligation to do so. Checking your beneficiary designations is not something to put off until later. Updating them now, along with the rest of your estate plan, provides peace of mind for you and your family.