The Importance of Naming Beneficiaries

Maura Schauss |
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By Nina L. Falci, Client Operations Coordinator

While it may be uncomfortable to consider our own passing, it’s an important reality that deserves your careful attention.  What will happen to all the assets you worked so hard to accumulate? You'll want to spend some time thinking about a plan and putting your plan into action. The most efficient, practical, and least costly estate planning technique is to name beneficiaries on your accounts.

Naming beneficiaries and creating a will are two important pieces in the estate planning puzzle. Estate planning is the key to ensuring your intentions are carried out the way you want after death. 

Leave It Up to The State?

When you name beneficiaries and create a will, you provide clear guidance regarding the disposition of your assets. If neither of these instruments is in place, all the decision-making regarding the parceling out of your assets is left to a court-appointed attorney in the state in which you resided.

Beneficiary Designations or a Will?

Beneficiary designations and wills each serve their own important purpose. As you know, family dynamics are tricky, and a divorce, falling out, or general family angst can give you a headache. Changing a will takes time, effort, and money. Alternatively, changing a beneficiary designation is quick, simple, free and can be completed by your advisor or plan administrator. Please speak with your attorney, tax advisor, or financial advisor to help you determine under which circumstances each piece of the estate planning puzzle will work best for you.

Retirement & Non-Retirement Accounts

So, where to begin? Designating beneficiaries in retirement accounts is an easy process. For an IRA, Roth or a 401(k), it typically takes one form (paper or online) to set or change your beneficiaries. You can name several primary beneficiaries as well as contingent beneficiaries. Charities can also be named as beneficiaries.  You may be required to provide the name, address, birth date, and Social Security number of the person(s) you designate, so have that information on hand. Consult your advisor or plan administrator, and always keep a record of your choices.

You should also name beneficiaries on brokerage accounts, especially if they are individual accounts. You can easily request paperwork to set up a transfer on death (TOD) arrangement. In most cases, it is a matter of filling out a form online. As with retirement accounts, you have the same flexibility to name multiple beneficiaries and either individuals or charities.

Advantages and Disadvantages

The advantages of beneficiary designations are plentiful: it’s easier for your executor and loved ones, it’s quicker, and it’s the least expensive estate planning method.

The instructions you provide by naming beneficiaries supersede, and will be processed prior to, the directions in a will. This means, by naming beneficiaries, your assets will be distributed to your heirs more quickly because they will bypass probate – a potentially long, drawn-out, and expensive process. Naming beneficiaries helps to avoid putting your loved ones through an arduous and extended legal procedure to get the assets you’d like them to have.

However, there are some drawbacks. If you want to control how your beneficiary spends the money, then more robust estate planning, such as creating trusts, could be a better choice for you to explore.

Review Beneficiary Designations Annually

It is important to review - and update as appropriate - your beneficiary forms on at least an annual basis, as well as after significant life events such as marriage, birth, adoption, divorce, or death. Take care to complete the forms accurately, because a misspelling, incorrect Social Security number, or birth date can derail your intentions.

We’re Here to Help

As always, we at Washington Wealth Advisors are here to answer any questions you may have or help you organize your beneficiary designations. Call our office at 703.584.2700, email clientservices@washingtonwealthadv.com or schedule some time with us.

 

Important WASHINGTON WEALTH ADVISORS DISCLOSURE Information

 

ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind.