Why the form wins
Retirement accounts, life insurance, annuities and health savings accounts pass by contract, directly to whoever is named on the form, outside your will and outside probate. A will that leaves everything to your spouse does nothing about a 401(k) that still names your college partner, because the institution pays the person on file. Former spouses are the classic case. Many states automatically cancel an ex-spouse's designation upon divorce, but employer plans governed by federal law generally follow the form as written.
Where to look
Make a list of everything that carries a designation.
- Workplace retirement plans carry one, including those left behind at old employers.
- IRAs and health savings accounts carry one.
- Life insurance carries one, including the group policy from your job that you forgot you had.
- Bank accounts can take a payable-on-death designation, and brokerage accounts a transfer-on-death registration, usually on a short form.
- In many states a vehicle title or a house deed can name a transfer-on-death beneficiary.
Log in to each and read what is on file. A blank form usually sends the money to your estate, which means probate, delay, exposure to creditors and, for retirement accounts, faster forced withdrawals.
Filling it in well
Name a primary beneficiary and a contingent one, who inherits if the primary has died. Use full legal names and percentages that add up to one hundred. Decide what happens if one of several beneficiaries dies before you: a per stirpes designation passes that share down to the person's children, while the alternative divides it among the survivors. Do not name a minor child outright, since insurers and plans will not pay a child directly and a court will appoint someone to manage the money. Name a trust for the child, or a custodian under your state's transfers to minors law. In a 401(k), federal law makes your spouse the beneficiary unless your spouse signs a waiver, and an IRA has no such rule outside community property states. If a beneficiary has a disability and receives government benefits, an outright inheritance can disqualify them, and a lawyer should set up a special needs trust.
Keeping it current
Review every form after a marriage, divorce, birth, adoption or death, and otherwise every two or three years. Rollovers and changes of plan administrator sometimes wipe designations, so check after any account moves.
Tip Tell your beneficiaries that the accounts exist and where they are held. Life insurance goes unclaimed mostly because nobody knew there was a policy to claim.
