At some point in your life you have probably started a new job, applied for life insurance, started an IRA or retirement account, or opened a bank account. You may remember when filling out the paperwork that the form asked for a beneficiary – both primary and contingent. This is simply telling the account’s custodian to whom you want your account to go to should you pass away.
Your primary beneficiary is the first (hence the name primary) that receives account balance or death benefit. The contingent is who receives the account balance in the event your primary beneficiary predeceases you. When choosing beneficiaries you had the choice of allocating a certain percentage to the primary and some to the contingent if needed. You may have even had two or more primary beneficiaries that you allocated a certain percent of your account to totaling 100%
Then you may have forgotten about the whole beneficiary thing. Until now.
It’s important to review and if necessary update your beneficiary designations ion your IRAs, 401(k), 403(b), life insurance and other savings and brokerage accounts. This is especially important if you’ve recently had a divorce, or your primary beneficiary has passed away.
In the divorce example, a couple could have gone through a nasty divorce and perhaps many years have passed and both have remarried. If they haven’t updated their beneficiary designations on their accounts and policies, guess who gets the proceeds? Yep. The ex-spouse.
Some folks think that if they have a will they can forgo naming beneficiaries as their wishes will be carried out through the will – maybe and maybe not. Also, not only is proving a will (called probate) made public, wills can also be contested by family members.
For example, a couple may have family that disagrees with their relationship. If they both have wills, those will could potentially be contested by the family. Any directives in the will allocating money to the surviving partner can be challenged. This can be virtually eliminated by the couple naming each other as beneficiaries on their life insurance and retirement accounts. Now their money passes to the surviving partner by operation of contract – and avoids the publicity of probate.
It never hurts to review your beneficiaries and if necessary update them. It only takes a few minutes to check and that few minutes can save you (and your desired beneficiaries) hours, if not years of hassle, hurt, and financial hardship.