What Is a Beneficiary and Why Does It Matter?
Your beneficiary designations on retirement accounts, annuities, and life insurance override your will. Here's why keeping them updated is critical.
3 min read · By John G. Ziesing, FRC
Beneficiary Designations Override Your Will
Most people don't realize this: the beneficiary you name on your IRA, 401(k), annuity, or life insurance policy supersedes your will. Even if your will says 'everything goes to my children,' if your ex-spouse is still listed as beneficiary on your 401(k), they get the money. Period.
Primary vs. Contingent Beneficiaries
A primary beneficiary is first in line. A contingent (or secondary) beneficiary receives the money if the primary is deceased. Always name both. Without a contingent, the money may go through probate — a slow, expensive legal process.
When to Update Your Beneficiaries
After marriage, divorce, the birth of a child or grandchild, the death of a beneficiary, or any major life change. We recommend reviewing beneficiary designations at least once a year as part of your annual financial review.
Common Mistakes
Naming your estate as beneficiary (forces probate and may accelerate taxes on inherited IRAs). Forgetting to update after divorce. Not naming contingent beneficiaries. Not considering per stirpes vs. per capita designations for multiple beneficiaries. At ACM, we review beneficiary designations as part of every client relationship.
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