The Importance Of Beneficiaries

A beneficiary is a person, people, or entity designated to receive assets (money, property) from another person in the event of an individual’s death.  A beneficiary can be set for a trust, will, bank account, brokerage account, life insurance policy, or retirement account (401(k), pension, IRA, annuities, etc). It’s a good idea to set a beneficiary for each of your financial accounts and review them occasionally to make sure they are still accurate.

By designating a beneficiary, you are expressing your wishes and giving direct instructions for what you want to happen with these particular assets in the event of your death. There are primary and contingent beneficiaries: primary is your first choice and contingent is your second choice if the primary person(s) is no longer living.

Having a will in place may seem like a good substitute for naming beneficiaries, but they work differently and you really should have both. A named beneficiary on your accounts and insurance policies takes precedence over instructions in a will. In other words if your named beneficiary on a 401(k) account is different than the general instructions left in a will, the named beneficiary will generally receive those 401(k) assets.  A will covers anything left without a named beneficiary. Additionally, assets with named beneficiaries pass directly to the recepient outside the probate process that settles a will.

It is important to keep your named beneficiaries updated as time goes by. Life events (birth, adoption, marriage, divorce, deaths) will likely change your priorities, and your beneficiaries need to be updated to reflect those changing circumstances. To find out who you’ve named beneficiary, and update them, log into your accounts online and look at your account settings. Not every account has the settings in the same place, so if you have trouble finding them, reach out to their support.