Over the years, the Mensch has had dealings with several different financial institutions: banks, brokerages, and insurance companies. Only one has ever reminded him to check on the beneficiary designations of financial products. That one is Vanguard.
It’s important that financial institutions and employers have accurate information, because beneficiary designations generally determine who inherits these accounts and may supersede the information in a will or trust. There are three ways property can be passed on to heirs at death: last will & testament, titling of property and beneficiary designation in a contract.
A will passes property that is individually owned to beneficiaries named in the will. Property that is owned jointly with rights of survivorship passes to the survivor and is not controlled by the will.
Insurance policies, annuities, pension plans, IRA’s, and other retirement plans are contracts that have named beneficiaries. A will has no control over these assets unless the owner named the estate as beneficiary.
One of the more common errors in beneficiary designations is neglecting to change a group life insurance policy beneficiary after a divorce. It is not unheard of for spouse number one to receive group life insurance proceeds because her ex never bothered to changed the beneficiary designation to the new wife. The same goes for IRA, pension and/or 401(k) benefits.
Another common scenario is the old life insurance policy that has mom and dad as beneficiaries and was never changed after Junior got married.
Your assignment for professional Wednesday is to review and update your beneficiary designations, particularly if you have experienced a major life event, such as a birth or adoption of a child, marriage, divorce, or death in the family. And if you don’t have a will, call your lawyer for an appointment to write a will.