You’ve worked hard to build your wealth and provide for the people you care about. You may already have a will, trust, or estate plan in place, and you’ve likely completed beneficiary forms for your retirement accounts and life insurance policies.
But there’s one important step that’s easy to overlook: making sure your beneficiary designations still reflect your wishes—and ensuring your loved ones know these accounts exist.
You don’t have to share every financial detail with your beneficiaries. However, making sure they know about important accounts, insurance policies, and where to find key documents can make settling your estate much easier during an already difficult time.
Beneficiary Designations Typically Override Your Will
Many people assume their will determines who inherits all of their assets. However, accounts with beneficiary designations—such as retirement accounts, life insurance policies, and many payable-on-death accounts—generally pass directly to the named beneficiary, regardless of what your will says.
That’s why keeping beneficiary forms up to date is so important. If your beneficiary designations no longer reflect your wishes, your estate planning documents alone may not change who ultimately receives those assets.
Why Communication Matters
Naming a beneficiary is only part of the process.
In many cases, financial institutions won’t automatically notify beneficiaries that an account or policy exists. Instead, beneficiaries often need to contact the institution, provide documentation, and complete the claims process.
If your loved ones don’t know an account exists—or don’t know where it’s held—they may face unnecessary delays or have difficulty locating the assets you’re intending to leave behind.
Each year, millions of dollars in financial assets and insurance benefits remain unclaimed because beneficiaries are unaware the accounts exist or don’t know how to begin the claims process.
Life Changes—Your Beneficiaries Should Too
Beneficiary designations aren’t something you complete once and forget.
Major life events can affect who you want to receive your assets, including:
- Marriage or remarriage
- Divorce
- The birth or adoption of a child
- The death of a spouse or beneficiary
- Significant changes in your financial situation
- Updates to your estate plan
Even if nothing major has changed, reviewing your beneficiary designations every few years can help ensure they continue to reflect your wishes.
Understanding Common Beneficiary Designations
Employer-Sponsored Retirement Plans (401(k), 403(b), and Similar Plans)
Many workplace retirement plans are subject to federal rules that provide important protections for spouses.
If you’re married, your spouse is often automatically considered the primary beneficiary unless they provide written, notarized consent allowing you to name someone else. Because plan rules can vary, it’s important to review your beneficiary designations whenever your marital or family situation changes.
Also remember that beneficiary forms on file with your employer—not your will—generally determine who receives these assets.
Individual Retirement Accounts (IRAs)
IRAs generally follow different rules than employer-sponsored retirement plans.
In most cases, you have the flexibility to name whomever you choose as your beneficiary, subject to applicable laws. Because these accounts pass according to the beneficiary designation, keeping your forms current is especially important.
Life Insurance Policies
Life insurance proceeds generally pass directly to the named beneficiary and typically avoid probate.
However, your beneficiaries still need to know the policy exists in order to file a claim. Simply naming someone on the policy doesn’t guarantee they’ll know where to begin.
Brokerage and Bank Accounts
Many financial institutions allow you to add a Transfer on Death (TOD) or Payable on Death (POD) designation.
These designations allow eligible assets to transfer directly to your named beneficiary, helping avoid probate and simplifying the transfer process.
Name Both Primary and Contingent Beneficiaries
Whenever possible, name both:
- Primary beneficiaries, who receive the assets first.
- Contingent (backup) beneficiaries, who inherit the assets if your primary beneficiary dies before you or cannot receive them.
Without a contingent beneficiary, assets may ultimately pass through your estate or according to the account’s default provisions, potentially creating additional delays and administrative work.
Considerations When Naming Beneficiaries
Every family’s situation is different, but here are a few important factors to keep in mind:
- You can name multiple beneficiaries and assign each a specific percentage.
- Minor children generally cannot inherit financial assets directly, so a trust or custodial arrangement may be appropriate.
- Charitable organizations can be named as beneficiaries and may receive certain retirement assets without paying income tax on distributions.
- Trusts can provide additional control over how assets are distributed but should be carefully coordinated with your estate planning documents.
- Non-U.S. citizen spouses and beneficiaries may be subject to different tax rules and reporting requirements.
Because beneficiary designations can have legal and tax implications, it’s often helpful to review them as part of your broader estate and financial plan.
Don’t Leave It to Your Estate Unless That’s Your Intention
If no beneficiary is named—or if all named beneficiaries have died before you and no contingent beneficiary is listed—the assets may become payable to your estate.
This can result in the assets going through probate, potentially increasing administrative costs, delaying distributions, and limiting certain planning opportunities for your heirs.
Keeping both primary and contingent beneficiaries current can help reduce these complications.
Keep Important Information Organized
One of the most valuable gifts you can leave your loved ones is clear information.
Consider keeping a document with your estate planning records that includes:
- A list of your retirement accounts, investment accounts, and insurance policies
- The financial institutions where they’re held
- Contact information for each institution
- The location of your will, trust, and other estate planning documents
- Contact information for your financial professional, attorney, and tax advisor
You don’t necessarily need to include account balances. Simply helping your loved ones know what exists and where to find it can save significant time, stress, and confusion.
Make Beneficiary Reviews Part of Your Financial Routine
Beneficiary designations often remain unchanged for years simply because they’re easy to overlook.
Reviewing these forms periodically—alongside your estate plan, retirement accounts, and insurance policies—can help ensure everything continues to reflect your goals as your life evolves.
A few minutes spent reviewing your beneficiary designations today could help prevent unintended outcomes and make the estate settlement process much smoother for your loved ones in the future.
The Bottom Line
Beneficiary designations are more than a formality—they’re legal instructions that determine who receives many of your financial assets. Keeping them current and making sure your loved ones know where to find important information can help ensure your wishes are carried out while reducing unnecessary stress during an already difficult time.
At Navalign Wealth Partners, we help clients review beneficiary designations as part of a comprehensive financial plan. If you’re unsure whether your beneficiary forms, retirement accounts, insurance policies, and estate planning documents are aligned, we’re here to help you evaluate your options and ensure everything continues to reflect your long-term goals.