Adding beneficiaries to your financial accounts is one of the most important steps you can take to protect your assets and ensure they are distributed according to your wishes after you pass away. Here at Delancey Street, we always recommend our clients add beneficiaries to accounts like bank accounts, retirement accounts, life insurance policies, and more. Here are 5 key reasons why you should add beneficiaries to your accounts right now:
1. Avoid Probate
Naming beneficiaries on your accounts allows the assets to pass directly to your beneficiaries upon your death, without having to go through probate. Probate is the long legal process of validating your will and settling your estate. It can take over a year in some cases and cost thousands in legal fees. With beneficiaries, your accounts bypass probate and go directly to your loved ones. This saves time, money, and a lot of headaches for your family.
2. Override Your Will
Here’s a common misconception – many people think their will determines where all their assets go when they die. But actually, your beneficiary designations trump your will. If your will leaves everything to your spouse but you name your sister as beneficiary on your life insurance policy, your sister gets the money from the life insurance no matter what the will says. So it’s crucial to keep your beneficiaries up to date as your life circumstances change.
3. Avoid Family Disputes
Naming beneficiaries eliminates confusion about where you wanted your money to go. Without clear beneficiary designations, accounts end up in probate and family members may fight over the assets. We’ve seen this happen time and time again. But with beneficiaries in place, your wishes are clear and it prevents bitter disputes down the road.
4. Speed Up Distribution
Beneficiaries allow your loved ones access to your accounts much faster than probate. With beneficiaries, account custodians can distribute the funds directly to your beneficiaries within weeks or months. But with probate, it can take over a year for assets to be distributed. This delay can be a huge burden on grieving families who are struggling with expenses and bills.
5. It’s Simple to Do
The good news is it’s quick and easy to add beneficiaries to your accounts. You can log into your online accounts and update the beneficiary info right away. Or call your account custodians like your bank, brokerage, or insurance company and they can walk you through the process. You’ll need your beneficiaries’ full legal name, address, date of birth, and Social Security number.So in summary, adding beneficiaries to your accounts ensures your assets bypass probate and go directly to your loved ones upon your death. It prevents family disputes, speeds up distribution, and is simple to set up. We recommend reviewing your beneficiaries annually and updating them after major life events. Don’t leave this crucial step to chance – take control now by adding beneficiaries. Reach out to us anytime if you need help getting this important task done. We’re here to help our clients gain peace of mind that their assets will be protected and distributed according to their wishes.
Who Can Be a Beneficiary?
You have a lot of flexibility when it comes to naming beneficiaries on your accounts. Here are some of the most common options:
- Spouse – Married couples often name each other as the primary beneficiary on accounts. Just make sure you update this if you get divorced.
- Children – You can name minor children as beneficiaries. The assets will be held in a custodial account until they reach age of majority.
- Other family members – Siblings, parents, grandparents, or other relatives can be good choices if you don’t have a spouse or children.
- Friends – Friends often feel honored to be chosen as a beneficiary. Just make sure they are financially responsible.
- Charities – You can name a charity or non-profit as a beneficiary on your accounts. This is a great way to leave a legacy and make an impact.
- Trusts – Naming a trust as beneficiary can provide control over how the inheritance is managed if your beneficiaries are minors or irresponsible with money.
- Estate – You can list your estate as the beneficiary, which will cause the assets to flow into probate. This is a good fallback option but not ideal for avoiding probate.
The key is to choose beneficiaries who you trust to use the inheritance wisely. You can split percentages between multiple beneficiaries as well. Just make sure the total adds up to 100% to avoid any confusion.
How to Add Beneficiaries to Your Accounts
Adding beneficiaries to your accounts is a simple process. Here are some tips:
- Retirement accounts – Log into your account portal for your 401(k), IRA, etc and look for the “beneficiaries” section. You can add info like name, birthdate, address.
- Bank accounts – Call your bank or visit a branch. Ask about adding a POD (payable on death) beneficiary to accounts like checking and savings.
- Brokerage accounts – Log into your brokerage account portal. Look for the “beneficiary” tab and enter info like name, birthdate, SSN.
- Life insurance – Contact your life insurance provider to get a beneficiary form. Send back the completed form.
- Real estate – Beneficiaries can be added to assets like homes and land by changing property deeds and titles.
Make sure to name both primary and contingent beneficiaries in case your primary beneficiary passes away before you. Also name percentages if splitting between multiple beneficiaries.
Can Beneficiaries Be Changed?
Absolutely! You can change your beneficiaries at any time as your circumstances evolve. There are several events where you will want to update your beneficiaries:
- Marriage or divorce – Make sure your new spouse is named on your accounts, and remove any ex-spouses.
- Birth or adoption of a child – Add your new child as a beneficiary on relevant accounts.
- Death of a beneficiary – If one of your named beneficiaries passes away, be sure to update your designations.
- Change in financial responsibility – If your beneficiary is irresponsible with money, you may want to change your selection.
- Major health events – If you or a beneficiary has a serious health diagnosis, it may impact your choices.
- Change in estate plan – Keep your beneficiaries aligned with your most up-to-date will and trusts.
Revisiting your beneficiaries annually is a smart idea. Major life events also signal it’s time for a beneficiary review. This ensures your assets flow to the right people.
Designating Account Percentages
When naming multiple beneficiaries on an account, you can assign percentages to each person. This allows you to split the assets according to your wishes.For example, you might do:
- Spouse – 50%
- Child 1 – 25%
- Child 2 – 25%
The percentages must add up to 100%. If you name multiple beneficiaries without percentages assigned, it will typically be split equally between them.You have total flexibility on the percentages – it can be an even split or different amounts like 60/40. Decide what is fair based on your specific situation.If one of the beneficiaries passes away before you, their percentage is re-allocated to the remaining beneficiaries. So make sure to name contingent beneficiaries as a backup plan.
Are There Beneficiary Rules for Spouses?
Special rules apply to naming a spouse as a beneficiary on certain accounts like retirement plans and life insurance policies.For workplace retirement accounts like 401(k)s, your spouse must sign a waiver if you want to name someone other than them as beneficiary.For IRAs, in community property states, your spouse may be entitled to half the assets no matter who you name as beneficiary.With life insurance, if you live in a community property state and name someone besides your spouse, they may still have legal claims.The rules vary by state and account type. We recommend consulting an estate planning attorney if you want to name someone other than a spouse. They can ensure your designations adhere to state laws.
We hope this overview has shown the importance of adding beneficiaries to your financial accounts. Naming beneficiaries ensures your assets transfer directly to your loved ones upon your death, avoiding probate. It also overrides what’s in your will, so it’s vital to keep beneficiaries updated.Please reach out to us if you need any assistance getting beneficiaries added to your accounts. We’re happy to help our clients through this important process. Taking just a few minutes to add beneficiaries will give you tremendous peace of mind knowing your assets are protected and your wishes will be followed.