Beneficiary designations are one of those things that most people fill out when they open a retirement account or get life insurance and never think about much after that. But most people don’t know how powerful these designations are.
They will overrule a will or other estate documents every time. This means that regardless of what you put in your will, once you die, your accounts or life insurance proceeds will go to exactly who is on your beneficiary designations, even if this means that your benefits go to a former spouse or someone you are no longer fond of.
There was even a case when after a new marriage, someone submitted updated beneficiaries for his employer-sponsored retirement account (ie 401(k)) but his HR department made a mistake and didn’t process it. When he passed away, his account went to his former spouse instead of his current spouse. His current spouse took it to court. The court ruled that regardless of what mistakes were made, the account has to go to whoever is the beneficiary on file. Period.
Life events are often a great time to review your designations. Things like a birth, adoption, death, marriage, divorce or any other significant change within your family. But if you haven’t looked at them in a while, I would recommend reviewing them as soon as possible.
Key designations to think about are those for retirement accounts (IRA, 401(k), 403b, TSP), life insurance, pensions and annuities. Even non-retirement accounts can have beneficiaries but these are generally called POD (payable on death) or TOD (transfer on death).
If there are no designations on file then the property will be paid according to law. This generally goes to your spouse first, then to your children in equal shares, then to your parents in equal shares and finally to your estate.
Putting in a little effort now to make sure these are correct can save tremendous amounts of problems and heartache down the road for you and your family.