Does It Matter Who I Name as a Beneficiary?
When people think about estate planning, they often focus on drafting a Will or setting up a trust. While those documents are critical, there’s another piece of the puzzle that’s just as important and often overlooked. Ensure your beneficiary designations are current.
Many types of financial accounts allow you to name a beneficiary, including retirement accounts like 401(k)s and IRAs. Other accounts, such as bank accounts and post-tax investment accounts, have a similar option that involves retitling the account. These titles typically take the form of Payable on Death (POD) or Transfer on Death (TOD) instructions. These titles enable the account to pass directly to a named individual outside of the probate process.
You may ask yourself, “I already have a beneficiary in my will; why do I need to make sure my retirement account has the correct beneficiary?”. Great question; the answer is that beneficiary designations override what’s written in your Will. That means if your Will says one thing, but your account lists someone else as a beneficiary, the account will go to the named person—no questions asked. This can lead to unintended consequences, especially if life circumstances have changed due to divorce, remarriage, births, or deaths.
A question we frequently help clients address is probate. Specifically, avoiding probate. Many believe that the only way to avoid probate is to establish a trust. A trust is one way to avoid probate, and often an expensive one. Another option is to name beneficiaries. Named beneficiaries will go directly to beneficiaries after your death, avoiding probate altogether. And the best part is that naming beneficiaries incurs no cost.
At Harford Financial Group, we regularly help clients review their account titling and beneficiary choices as part of our holistic planning process. Ensuring your assets align with your overall estate plan helps prevent costly mistakes and family conflict and ensures your legacy is passed on according to your wishes.
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If it’s been more than a year since you reviewed your beneficiaries—or if you’ve had a significant life event—it’s time to take another look. This simple step can make a big difference for your loved ones.