Beneficiary Designations – The Overlooked Minefield of Estate Planning
Who knew so many things could go wrong? Well, they can. Here are some of the main mistakes to avoid and the best practices to follow instead.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
Most consumers are familiar with the beneficiary designation form they complete when opening an IRA or 401(k). The form designates who receives the asset if the account owner dies. Yet, these forms can create confusion, unintended bequests and family turmoil if not adequately monitored.
A variety of account types are governed by beneficiary designation. Life insurance, 401(k)s, IRAs and annuities are the most common investment accounts that contain contractual provisions that determine who receives the asset upon the death of the owner.
Here are several of the mistakes I see people make with beneficiary designations and some tips to avoid problems for you or family members.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Thinking Your Will Has More Power Than It Does
Many consumers mistakenly believe their will takes precedent over any beneficiary designation form. A will governs assets of one’s probate estate. Accounts with contractual beneficiary designations are not governed by will because they pass outside of probate. We advise clients to review their beneficiary designations anytime they revisit their will.
Letting Accounts Fall Through the Cracks
Inattention is another factor that can lead to unintended outcomes. Prior employer 401(k) accounts are sometimes “orphaned,” meaning that they remain with the old employer and aren’t updated to reflect new realities. Last year I met with a prospective client who had three different 401(k) accounts from old employers going back over 20 years. When we reviewed the accounts, we discovered his ex-wife (from whom he had been divorced over 15 years) was the primary beneficiary of one of his accounts.
Failing to Plan for Contingencies
Another area people fail to give proper consideration is anticipating a beneficiary predeceasing them. I recently learned of a situation where a friend’s 92-year-old mother passed away. She had three children, one of whom had predeceased her a few years ago. Her IRA (worth well over $1 million) named her three children as equal beneficiaries. However, on the form she had not indicated a per stirpes or per capita election.
As a result, her two surviving children split the IRA proceeds equally, with the children of her deceased child receiving nothing. The family is now involved in expensive litigation and bitter feelings among family members.
Some Best Practices to Take to Heart
According to Raleigh, N.C., estate planning attorney Chris Morden, following these “best practices” helps ensure proper coordination of one’s estate plan:
- Keep copies of all communications when updating beneficiary designations by mail or online. Copies of correspondence, website submissions and any confirmations received from providers should be kept with estate planning documents in a safe location.
- should review their estate plans (including beneficiary designations) every three to five years. Since 2020 is a leap year, it provides a great review marker going forward.
Effective estate planning extends beyond one’s will and requires periodic review. If neglected, something as mundane as beneficiary designations can upend your intentions, create confusion and breed family resentment.
-
How Much It Costs to Host a Super Bowl Party in 2026Hosting a Super Bowl party in 2026 could cost you. Here's a breakdown of food, drink and entertainment costs — plus ways to save.
-
3 Reasons to Use a 5-Year CD As You Approach RetirementA five-year CD can help you reach other milestones as you approach retirement.
-
Your Adult Kids Are Doing Fine. Is It Time To Spend Some of Their Inheritance?If your kids are successful, do they need an inheritance? Ask yourself these four questions before passing down another dollar.
-
The 4 Estate Planning Documents Every High-Net-Worth Family Needs (Not Just a Will)The key to successful estate planning for HNW families isn't just drafting these four documents, but ensuring they're current and immediately accessible.
-
Love and Legacy: What Couples Rarely Talk About (But Should)Couples who talk openly about finances, including estate planning, are more likely to head into retirement joyfully. How can you get the conversation going?
-
How to Get the Fair Value for Your Shares When You Are in the Minority Vote on a Sale of Substantially All Corporate AssetsWhen a sale of substantially all corporate assets is approved by majority vote, shareholders on the losing side of the vote should understand their rights.
-
How to Add a Pet Trust to Your Estate Plan: Don't Leave Your Best Friend to ChanceAdding a pet trust to your estate plan can ensure your pets are properly looked after when you're no longer able to care for them. This is how to go about it.
-
Want to Avoid Leaving Chaos in Your Wake? Don't Leave Behind an Outdated Estate PlanAn outdated or incomplete estate plan could cause confusion for those handling your affairs at a difficult time. This guide highlights what to update and when.
-
I'm a Financial Adviser: This Is Why I Became an Advocate for Fee-Only Financial AdviceCan financial advisers who earn commissions on product sales give clients the best advice? For one professional, changing track was the clear choice.
-
I Met With 100-Plus Advisers to Develop This Road Map for Adopting AIFor financial advisers eager to embrace AI but unsure where to start, this road map will help you integrate the right tools and safeguards into your work.
-
The Referral Revolution: How to Grow Your Business With TrustYou can attract ideal clients by focusing on value and leveraging your current relationships to create a referral-based practice.
