Are Your Beneficiaries Updated?

By: Michael Foster, CFA, CFP®

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One truth about working as a financial planner: we’re forced into thinking about death…kind of often.

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Have you created or updated your estate plan? Do you have enough life insurance in the event something happens? What can you expect to pass along as an inheritance at end of life? These are questions we help our clients work through frequently. While they may not be quite as fun as our discussions around buying a home, what retirement dreams look like, and helping send kids to college, they’re undoubtedly a huge part of making sure our clients’ finances are working for them.

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One area we help our clients with involves assigning and updating beneficiaries. You can have the best intentions when working through the big picture issues like creating an estate plan, but too often we come across potential clients that haven’t put their plans in motion. As part of our process of working with clients, we help them ensure their beneficiaries (primary and contingent) are updated to their preferences. We will then review them periodically to ensure that no changes are needed and help them make updates if necessary.

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When to Update Beneficiaries

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Some main catalysts for updating beneficiaries are if you’ve opened a new account or policy or if you realize that you’ve never updated them at all. This is the “obviously needs to get done” bucket.  Less obvious triggers can include after updating an estate plan (potentially including a trust) or after major life events happen.

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We occasionally see families that have crafted a thoughtful plan with an estate planning attorney. Often times, these clients will have setup a trust in order to protect assets, ensure wishes are followed, and to avoid probate. The only issue is that they haven’t actually retitled anything in the name of the trust or updated the trust as a beneficiary if appropriate. In this case, they may not be getting the full benefit of the estate planning documents that took time, energy, and effort to put together.

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Major life events such as marriage, divorce, the birth of a child, or the loss of a loved one can certainly impact your financial plans. If you’ve experienced any of these, among others, it can be crucial to review and update your beneficiary designations to ensure your assets go to the right people. 

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For instance, if you were previously married and named your ex-spouse as a beneficiary, failing to update your accounts could mean they still receive your life insurance benefits or retirement funds, rather than your current spouse or children.

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Avoiding Time & Money-Consuming Legal Complications

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Beneficiary designations on retirement accounts, life insurance policies, and annuities override wills. Even if your will states your assets should go to specific individuals, outdated beneficiary designations could distribute them differently, leading to family disputes and potential legal battles.

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Additionally, if no beneficiary is named, your assets may have to go through probate, a potentially lengthy and often costly legal process that can delay financial support for your loved ones. Updating beneficiaries can help facilitate a smooth transition of assets.

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Taking Action

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The good news about updating beneficiaries is that it’s usually a relatively easy thing to do. In terms of time spent to potential impact on long-term goals, it has a high ROI. For certain accounts, you can simply update them online. Other types of accounts may require paperwork. 

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If you haven’t reviewed your designations recently, I encourage you to do so. If you’re unsure about the process or need guidance, we’re here to help. Let’s ensure your financial future is aligned with your intentions, both now and in the years to come.