Designate and Donate — Beneficiary Designation

A beneficiary designation is a way to indicate who will receive an account upon the death of the account owner. Examples of assets that can be distributed via a beneficiary designation include financial accounts (e.g., savings, checking, retirement, commercial annuities, investment), life insurance, and IRAs or other qualified plans.

Beneficiaries can be a family member or friend, but they can also be your favorite charity, like Operation Mobilization, or even your estate. Typically the beneficiary designation form that is completed for each of these assets specifies the percentage you want each beneficiary to receive. Secondary (or “contingent”) beneficiaries are important in case the primary beneficiaries predecease you, or cannot or will not accept the inheritance. When the account owner dies, the funds pass directly to the named beneficiaries and do not enter probate (the procedure by which other assets are distributed after death). A beneficiary designation overrides instructions in a will or trust, so be sure that you have carefully coordinated who gets what.

Here are five mistakes to avoid when dealing with beneficiary designations:

1. Not naming beneficiaries for your accounts and life insurance policies. These assets will go to probate and will be distributed with the residue of your estate, possibly in a manner you did not intend. If there is no probate and the accounts or proceeds are unclaimed, they might be added to the unclaimed property database for the state in which the decedent was domiciled. This will add delays, expense, and likely result in a higher tax bill, too.
2. Failing to take into account any special circumstances of your beneficiaries. Not all of them should or can directly receive an asset, e.g., minor children are not legally able to claim the assets, requiring the appointment of a conservator to claim and manage the money until the child turns 18.
3. Naming a beneficiary incorrectly. Names can get changed through marriage and divorce, so make sure any beneficiary is listed correctly. The same is true for charitable organizations. That’s why we provide the exact way to list Operation Mobilization, along with our tax identification number (TIN), on a beneficiary form.
4. Having a done it and leave it attitude. Review beneficiary designations regularly and update them if they no longer meet your wishes.
5. Not reviewing your forms with your financial and legal advisors so they can help you determine what is best for your personal situation.

The takeaways are…

1. ensure that you’ve completed primary and secondary beneficiary designations accurately for all eligible accounts;
2. ensure your beneficiary designations and your will or trust do not conflict; and
3. review your beneficiary designations regularly to ensure that the beneficiaries are accurate and reflect your wishes.

The bottom line is that taking the time to carefully and accurately select your beneficiaries, and periodically reviewing your choices and making necessary updates keep you in control of your assets, and that is exactly what this process is all about.