Update your beneficiary designations

February 6, 2014, by

When you get a new job, you have to fill out a lot of forms. There are a lot of choices to make. Often, one of those is picking a beneficiary designation for your 401(k).

Or perhaps years ago you started a retirement account with a lovely small investment firm. You may not even remember, but you probably picked a beneficiary. And an alternate beneficiary.

What about your life insurance policy? Or work-provided life insurance? If you have them, you've picked a beneficiary.

Here's today's to-do item: Check those beneficiary designations. Update them.

Those funds don't pass through your Will unless your Will is specifically drafted to override them (and even then, sometimes that "Superwill" provision doesn't work). Your retirement plan and life insurance pass directly to your designated beneficiaries.

In several situations we've had recently, a parent designated one child as a beneficiary for an account - rather than dividing it between all the children. Legally, the beneficiary doesn't have to share. The money is his or hers.

It may seem logical to designate the most responsible child as the sole beneficiary, assuming they'll handle distributing the money to their family members. But that doesn't always happen.

Worse, we've had situations where family relationships changed - but the beneficiary designations didn't. Family members left funds to exactly the wrong people.

So, go change your beneficiaries. While you're at it, it's best not to designate minors. Chances are they'll turn 18 before your death, but you never know. Financial institutions won't give funds to minors, so if something happened to you, there would have to be a court action to distribute the funds to a trustee or a custodian. A better plan: Draft a will with a trust or custodian provision for minors, and designate that as the beneficiary on behalf of your minor.