Naming Beneficiaries

Aaron Archambo - Friday, September 05, 2014

At first glance it might seem that naming beneficiaries would be fairly simple and inconsequential, but unfortunately, this is not always the case.  Certainly completing a beneficiary designation form is easy enough, but the ramifications of completing it incorrectly can cause problems later on.  Let’s discuss this topic in more detail:


What is a beneficiary designation?

Naming a beneficiary allows the owner of the account to designate who will receive the asset upon his or her death.  Beneficiary designations are allowed in the following devises:  Life Insurance, Annuities, IRAs, SEPs, Simple IRAs, 401ks, & TOD/POD (transfer-on-death/pay-on-death) accounts.


Why is it important to name a beneficiary?

Without a beneficiary designation, it would be left up to your state of residence to decide who should receive your assets, but this may not result in what you want.  This process occurs through probate court.  Even if you have a will in place, probate is still required to administer your wishes.  However, having beneficiaries designated takes priority over your will, thus bypassing probate and flowing automatically to the recipient.   This is a much quicker and less expensive process.


In most cases you will be allowed to name primary and contingent beneficiaries.  The primary beneficiary will be the first person(s) in line to receive the asset if you die.  If the primary person(s) has predeceased you, it will be necessary to have a contingent beneficiary named.


It is permissible to name more than one primary and/or contingent beneficiary.  If naming more than one, the asset will be split equally, unless you designate otherwise.


Who should and should not be named as beneficiaries?

For married couples it is typical for them to name one another as their primary beneficiary.  This is perfectly acceptable and even advisable in most cases.  However, not everyone is married, so other options need to be considered.  If you have taken time to work with an attorney to create a Trust, this could be the best option as your primary or contingent beneficiary designation.  Many times we see clients name their children or relatives as primary or contingent beneficiaries.  This too is acceptable, but take time to think through your options before making this important decision.  If you are single with no kids and no trust, you may want to consider family members like your parents or siblings.


It is not recommended to name your estate as your beneficiary, as your assets will end up going straight into probate, which is costly and time consuming.  It is also not recommended to name your minor children as beneficiaries.  Minor children are not permitted to own legal property in their name.  Even though it is not advisable, it is quite common to see minor children listed as contingent beneficiaries.  In this case, keep in mind that the courts would need to appoint a guardian to manage the property on their behalf until they reach the age of majority (typically age 18 in most states).  This would only be the case if the account owner dies and no other beneficiary designations are listed ahead of the minor children.


The Bottom Line

Even after you have taken time to consider your options and have designated beneficiaries, your job is still not done.  It is important to review your designations regularly as things vary from year to year.  Unfortunately, family dynamics, such as a divorce, can change and this needs to be factored when doing your review.  It will be important to remove your ex-spouse if a divorce has occurred, otherwise they will receive your assets.  More times than not though, people decide on their beneficiaries and never review them again.  As previously noted, this could be problematic.  So take the time to review your designations annually, because completing a change of beneficiary form is simple and quick.

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The full range of services offered at Archambo Financial Advisors are designed to meet your financial advisory needs today, tomorrow and well into the future. Archambo Financial Advisors can lead you through the many financial stages of your life.

310 S. Osage

Bartlesville, OK   74003

Fax: 918-336-2214

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