3 Steps to a Thoughtful Beneficiary Review

/ February 18, 2012

Man Looking At Tablet - iStockMake Sure Your Money Goes to the Right Person after You’re Gone

There is so much information available about personal finances that you could spend your entire life reading all of it and you would never reach the end. Usually personal financial topics are geared toward what to do with your investments or how to grow your nest egg. What’s lacking is information about the details of planning your estate. Unless you read Epilawg, of course, there just isn’t a lot of good and reliable information about Wills, trusts and beneficiary designations. For most people, these things aren’t usually on top of the priority list when it comes to planning their finances.

It’s understandable that you may not want to talk, or think, about dying. Estate planning topics can feel like they are things to be worried about “someday” rather than today. But just like many other things in life, the devil is in the details when it comes to planning your estate properly. A well thought-out estate plan will help you make sure all the details are taken care of so that you have peace of mind.

One particular estate planning area that is often misunderstood is naming beneficiaries on financial accounts like your 401k, IRA, brokerage accounts, savings accounts and other financial accounts. The biggest misunderstanding is that having a Will in place is enough to ensure your assets go to the proper people and places when you’re gone. What you may not realize is that beneficiary designations on your individual retirement and financial accounts will trump what is written in your Will.


Another issue that I see far too often is the estate being named as beneficiary on accounts like IRAs and 401Ks. Usually, retirement accounts will stay out of probate because they have an actual person named as the beneficiary. Therefore these accounts are paid directly to the beneficiaries who are listed on the beneficiary form. Naming the estate as the beneficiary guarantees that your account will have to go through the probate process, which can be costly and time-consuming. Usually, one of the goals of an estate plan is to keep as much of your estate from going through probate as possible. This will save your family time and money. Having up-to-date beneficiary designations on your various financial and retirement accounts will ensure those assets avoid probate.


The second big problem with naming the estate as the beneficiary of a retirement account, like an IRA, is that the estate is not a living person and is not technically a “designated beneficiary” because it has no life expectancy. This means that your heirs would lose the ability to do a stretch IRA and the whole amount of the account would be paid out to the estate. This could cause a huge portion of your assets to be paid out in taxes at one time instead of stretched out over the lifetime of your heirs.

Common Mistakes

What are some other mistakes found during a beneficiary review?

  • Forgetting to remove an ex-spouse as beneficiary after a divorce – this is especially problematic if you re-married
  • Not updating beneficiaries when additional children are born
  • Younger adults still naming their parents as beneficiaries even after they marry or have kids
  • Naming the estate as beneficiary
  • Not naming any contingent beneficiaries
  • Naming beneficiaries that have pre-deceased the owner of the asset
  • Beneficiary designations not properly identifying a trust that has been set up for the estate

You could easily catch these mistakes and fix them by completing an appropriate beneficiary review on your financial assets. I would suggest that you complete a beneficiary review with your estate planning attorney and financial advisor.

Three Steps

In the event that you have not retained an estate planning attorney or financial advisor, I would suggest the following self-guided three step process. Take note that this process does not exempt you from seeking professional legal or financial planning advice. Too many mistakes can be made, so get some professional help.

Here’s the 3 step beneficiary review process:

Step 1: Sit down and list out all of your assets. This includes: financial accounts like 401k, IRAs, Roth IRAs, brokerage accounts, savings accounts, CD’s, checking accounts, annuities, life insurance and any other accounts or assets that may have beneficiary designations associated with them. Don’t sit around and try to remember whether you have updated the beneficiary or not. Just add everything to a list and then try to locate your most recent statement for each one. Gather information like account numbers, current beneficiaries, advisors associated with the account and other owners on the accounts.

Step 2: Have a discussion that outlines how you want your assets distributed when you’re gone. This is a big deal. This discussion will not only help you decide how you want to name your beneficiaries on your accounts but it will lay the foundation for how you want to plan your estate overall. It’s a great idea to include your estate planner and financial advisor in this conversation. They will be able to point you in the right direction and ensure you avoid making any mistakes with your planning.

Step 3: Get to work finding out what the current beneficiary designations are on all of your assets. Take the proper steps to change and update beneficiaries. Usually it will involve filling out a form. You should have all the information you need from step one to get in touch with the right people and get the forms that you need.

It’s not uncommon for people to be unable to locate beneficiary information. If you have accounts that you don’t have beneficiary information for, it would be a good idea to make a phone call and request it. If it’s not as easy as a phone call, you may have to send a letter asking for the firm to send you a copy of your beneficiary information for your own files.

I hope this information helps you quickly and easily start the process of getting your beneficiaries organized. Don’t procrastinate on taking care of the small details when it comes to your financial affairs. By reviewing your beneficiary designations you’ll ensure your money goes where it will have a positive impact on your family’s well-being.

To get you started in your review, please click here for your free Beneficiary Review and Estate Planning Kit from Excelsior Wealth Management.

Neither Woodbury Financial Services, Inc. nor its representatives offer tax or legal advice. For assistance with these matters, please consult your tax or legal advisor.  While this information has been checked with sources believed to be reliable, the accuracy cannot be guaranteed. This information is intended for general education only, and investors should carefully consider their personal situation and circumstances. Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Adviser. PO Box 64284 St. Paul, MN 55164 (800)800-2638.