Why Updating Your Beneficiaries Matters More Than You Think

Life changes fast – marriage, divorce, a new child, retirement, or a career transition. But one thing that shouldn’t fall through the cracks is your beneficiary information. Outdated designations can lead to costly mistakes, delays, and conflict after you’re gone.

Whether you’re a busy physician, dentist, executive, or retiree, ensuring your beneficiary designations match your current wishes is a simple but critical part of your financial plan.

What Is a Beneficiary?

A beneficiary is a person or entity, like a charity, trust, or your estate, designated to receive assets from financial accounts like life insurance policies, IRAs, or retirement plans after the account holder’s death.

You’re typically required to name a beneficiary when setting up accounts such as:

• Individual Retirement Accounts (IRAs)
• Employer-sponsored retirement plans (e.g., 401(k)s)
• Life insurance policies
• Certain investment or annuity accounts

When Should You Update Your Beneficiaries?

You should review your beneficiary designations after any significant life event. Here are a few examples:

• Marriage or Divorce – Update your designations to reflect your current relationship.
• Birth or Adoption of a Child – Ensure all your children are included.
• Job Change or Retirement – New employer plans or rolled-over accounts may need review.
• Death of a Previous Beneficiary – Replace anyone who has passed away.
• Changes to a Charity or Trust – If the entity no longer exists or has changed, it’s time to revise.

Even if no major life event has occurred, reviewing your beneficiaries every few years is a smart practice.

Why Keeping Beneficiaries Current Is So Important

1. It Eliminates Confusion: Beneficiary designations provide clarity about who should receive what. This reduces the chances of disputes or delays for your loved ones.

2. It Helps Avoid Probate: Accounts with named beneficiaries typically bypass probate entirely, allowing for a faster and smoother transfer of assets.

3. It Ensures Alignment with Your Estate Plan: Your will may say one thing, but beneficiary designations override it. In fact, the U.S. Supreme Court ruled in 2018 that beneficiary designations take precedence over wills or trusts.

4. It Prevents Delays Due to Missing Contact Info: If a beneficiary’s address or phone number has changed, it can hold up payment. Keep their details current.

What Information Do You Need to Update a Beneficiary?

Updating your beneficiary is typically straightforward. You'll need:

• Full legal name (no nicknames | include suffixes such as “Jr.” or “III”)
• Date of birth
• Relationship to you
• Full mailing address
• Phone number
• Social Security Number or ITIN (individual taxpayer identification number). Note: While this last step is not required, it is helpful in locating your beneficiary.

What Happens if You Don't Name a Beneficiary?

If you fail to designate a beneficiary, or your listed beneficiaries are deceased or invalid, your account may be distributed:

• According to the account’s default rules (plan document or custodian)
• Under state law
• To your estate, which may trigger probate and tax implications

Can You Name a Trust or Charity as a Beneficiary?

Yes. Naming a trust can give you more control over how and when the money is distributed, especially for minor children or beneficiaries with special needs. Charitable beneficiaries can also be named, though tax implications should be reviewed with your advisor.

Spousal Consent Notice

If you are married, you may be required to obtain spousal consent to designate a non-spouse as the primary beneficiary.

Can You Name a Trust or Charity as a Beneficiary?

Yes. Naming a trust can give you more control over how and when the money is distributed, especially for minor children or beneficiaries with special needs. Charitable beneficiaries can also be named, though tax implications should be reviewed with your advisor.

Per Stirpes vs. Per Capita: What’s the Difference?

These are two common ways to divide assets among beneficiaries:

Per Stirpes ("by branch")

• If a beneficiary dies before you, their share passes to their heirs.
• Keeps distributions within family lines.

Example:

You name your three children: Sam (50%), Jane (25%), and Bryan (25%). If Sam dies before you, his 50% share goes to his children.

Per Capita ("by head")

• Distributes the share of a deceased beneficiary evenly among surviving named beneficiaries.
• Does not pass to heirs unless they are named.

Example:

You name Sam, Jane, and Bryan. If Sam predeceases you, his 1/3 share is divided among the surviving beneficiaries.

These elections can be complex, so it’s wise to consult with a trust and estate attorney before finalizing.

Final Thoughts

You’ve likely taken the time to create a will or trust, but if your beneficiary designations aren’t aligned, your intentions may not be honored.

Beneficiary designations are legally binding and override what’s in your estate documents. Fortunately, updating them is easy.

If you’re unsure where to start or want a second set of eyes, our team at Spaugh Dameron Tenny is here to help. We can review your current designations, ensure they match your wishes, and help you coordinate with your broader estate and financial plan.

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