What is a Beneficiary Designation and Why is it Important?

Posted in Financial Protection on


Having proper beneficiary designations is an aspect of estate planning that is important to all of us.  What is a beneficiary designation and why should I care? This isn’t some crazy tax-saving strategy for the super wealthy. It applies to anyone who has an account with a designated beneficiary. If you’re not sure whether or not you do, this includes accounts like 401(k)s, IRAs, Roth IRAs, pensions as well as insurance policies and annuities. The beneficiary is the person who would “benefit” from the account if something were to happen to you.

I was speaking with estate planning attorney, Kyle Krasa about the fact that we all have an estate plan. If you haven’t been proactive and confirmed your beneficiaries, it might not be the plan you want. If you still need convincing, here is an article, titled Pension Pickle, from the New York Post that Kyle shared with me.

In this case, a widower lost a million dollars that he expected to receive from his late wife’s pension. A beneficiary designation form was never updated, so the original form, even though it was old, stood. It was filled out before the late wife had met her husband and named close family as the beneficiary. The late husband was left with nothing. That’s why you should care!

Request a confirmation of the beneficiary in writing. If it’s not accurate, change it and request a written confirmation of that update. Are there any accounts you’ve forgotten about? Try to remember, it might be that 401(k) that you started at a job you had three jobs ago. Communicate your wishes to the beneficiary. You can choose multiple people as a beneficiaries or you can also name your trust or favorite charity. Keep documentation of your beneficiaries with the rest of your estate planning documents.

Beneficiaries are an important part of your broader estate plan. You might consider establishing a trust and reviewing the titling of property. If you think you might need help making the right decisions when it comes to your estate plan, consult an estate planning attorney or a financial planner whose services are comprehensive and who can coordinate estate planning issues with your overall financial picture.

This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.