Revisiting Your Beneficiary Designations (Part 2)
September 24, 2021
In the first article of this two-part series, we covered why it’s important to name and periodically review the beneficiary designations for your retirement accounts and insurance policies. Now let’s take a look at who you should select and how to ensure your designations match your current wishes.
Who to Name as Beneficiary
A common misconception is that your beneficiary has to be your spouse. Beneficiaries can be your children, grandchildren, favorite niece, godchild, sibling, close friend, unmarried partner, charitable organization, trust, or virtually any person or entity you choose. Just remember that if you name your estate, the money will be subject to probate.
Think carefully about who you select as both the beneficiaries and the contingent beneficiaries to ensure they are consistent with your current wishes and that it will not cause unintended hardship on that person or their family. It’s usually not advisable to name a minor directly or a special needs individual.
If you’ve named a minor as a direct beneficiary of your retirement accounts or life insurance policies, the assets will be transferred in the beneficiary's name when they reach the state’s legal age of 18 or 21. It might not be in their best interest to receive a large sum of money at such a young age; a living or revocable trust may be a better option.
Designating special needs or disabled individuals as direct beneficiaries could become a problem if they are receiving or may need government aid for their disability, as it could unintentionally disqualify them. A special needs or supplemental trust could be a better option.
Consult with your tax or financial professional regarding the specifics of trusts, transfers, titling, and withdrawals.
Make a list of accounts and policies to review each year and to ensure the designations match your current wishes. It’s also a good idea to revisit your designations after major life events, such as marriage, divorce, or welcoming a child.
If you are not careful, your money could easily fall into the wrong hands—an ex-spouse or an old roommate you haven’t spoken to in years. The good news is, it takes very little time to check your accounts and policies, and updating them is generally a fairly easy process.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience, and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.