For many people, estate planning is a topic that conjures up painful thoughts of meetings with an attorney and a huge price tag. It doesn’t have to be that way. In fact, one of the smartest estate planning moves you can make likely won’t cost you a dime.

Estate planning is the process of deciding what you want to happen with your assets when you die, and then putting it in writing to make it official. When you’re ready to go into a lot of detail with your estate plan you’ll want to enlist the help of a lawyer to put together a trust or, at the very least, a will. In the meantime, you should make sure your beneficiary designations are up to date for all accounts and insurance policies that allow them.

If you’re like many of us, much of your wealth is contained in your bank accounts, retirement accounts and life insurance policies. In most cases, you can designate your beneficiaries for these types of accounts in a few minutes online, or with a simple form.

Beneficiary designation almost always trumps a will or trust.

Example of an estate plan gone wrong

Consider this real-life disaster scenario I ran into on the job several years ago. I received a call from the surviving spouse of a client who had recently passed away. She assumed she was the rightful heir of his retirement account managed by the firm I worked for. When I dug into the client’s records, I discovered that the most recent beneficiary listed for his account was his ex-wife. The woman he was married to when he passed wanted to provide a copy of his trust to us to prove she was entitled to receive the money. Unfortunately, it doesn’t work that way. By law, we had to transfer his retirement assets to the ex-wife. Even though our client went to the effort and expense of creating a trust, since he didn’t update his beneficiary designations, his intentions for one of his largest assets were not carried out. Talk about uncomfortable conversations; I’ll never forget that one.

Tip: Beneficiary designation almost always trumps a will or trust. Even if you spent a few thousand dollars creating a trust that details your wishes for your assets, the company managing your assets is obligated to follow the instructions on the most recent beneficiary designation on file.


ACTION STEP! Print or screenshot this post right now to remind you to update your beneficiaries this week. And follow through. It won’t cost you anything and you’ll get great peace of mind.


Types of accounts that have a beneficiary designation:

  • Retirement accounts with your employer
  • Individual Retirement Arrangements (IRA)
  • Life insurance policies
  • Annuities

Bank accounts rarely have a beneficiary designation, unless you specifically request it. If you have a spouse or other person listed as joint owner, they will remain in control of the assets when you pass. If you have a trust, it’s usually best to re-title bank accounts in the name of your trust. Consult the attorney that helped you set up the trust.

Most banks and credit unions allow you to register your account(s) with Transfer on Death (TOD) designation. It’s pretty much the same as a beneficiary designation. This is a good idea even if you have a joint owner, in case both of you pass together, or relatively close together.

If you have a trust, it’s usually best to re-title bank accounts in the name of your trust. Consult the attorney that helped you set up the trust.

These days, many financial institutions make it easy for you to see or update your beneficiary online. The thing is, few have migrated beneficiaries into your online profile that you named on paper forms years ago.

You’ll be smart to log into your online profile and check your beneficiaries. If the people you want to receive your assets aren’t visible, go ahead and name them as beneficiaries now. While you’re at it, print the pages listing your beneficiaries and keep them in a file with other end of life paperwork. You’ll be doing yourself, your heirs and your financial companies a big favor.

Types of beneficiaries:

  • Primary – First in line to receive the assets. Can be one or more persons, or organizations. You say the percentage each will receive.
  • Contingent – Receives assets only if primary beneficiary(ies) are unable to receive them; for example, if they pass before you.

Per Stirpes beneficiary designation

Per stirpes is a term used to describe what happens to assets if more than one beneficiary is named and one or more is not able to receive their share.

Example: A man has two adult children and names them as equal (50/50) beneficiaries to receive his $100,000 life insurance benefit. If Child A is no longer living when he dies, Child B would receive the full proceeds $100,000. However, if Child A has children of her own, the policy owner could designate require that if either of his beneficiaries dies before he does, their share would pass on to their children. This concept is referred to as per stirpes.

If any of these concepts are confusing to you, just ask a representative with your financial institution(s) to help you. This is business as usual for them.

The takeaway

When it comes to estate planning, we’re often advised to create a will and establish a trust. Both are good ideas. But even if you have a will or trust, your assets may end up in the wrong hands when you die if you don’t have proper beneficiary designations in place.

Whether you have a formal estate plan or not, contact all the companies you currently have investments, life insurance or bank account balances with and update your beneficiaries. It won’t cost you a dime and you’ll get instant peace of mind knowing your money will go where you want it when you pass.


Important: The information provided here is for educational purposes and should not be considered advice. Before you make any decisions, consult a trustworthy financial professional and/or tax planner.