When we establish a new account or policy, from life insurance to 401ks to annuities, we are asked to name a beneficiary. This beneficiary is an individual that will receive all or some of the account proceeds if you happen to pass away. Life changes such as marriages, divorces, children or family member deaths all influence your financial plans and potentially your beneficiary information. It just takes a few minutes, but so many of us overlook this necessary step.

Why is it important to name beneficiaries and to make it a priority to review them annually? There are a few reasons why you should always name beneficiaries.

You control where your money goes.
You may desire to leave money to your grandchildren or another family member, or even a charity. Naming a beneficiary clarifies your wishes. Also, beneficiary designations allow for more privacy since a will becomes public record when it has to be probated.

Beneficiary designations also supersede wills. This means that if you update your will but forget to update your beneficiary designation, whoever is listed as your beneficiary will receive the assets.

Tax advantages.
On retirement accounts, a beneficiary may continue to defer taxes over time. A non-qualified annuity may also allow for deferral depending on the terms. Your designated recipients can potentially defer taxes.

Time and money savings.
If you fail to list a beneficiary on a $500,000 life insurance policy, for example, the death benefit may be paid out as outlined in the coverage, either in order of preference (i.e. spouse, children, etc.) or as a default to your estate. Funds could also be tied up on probate and probate can cost you too.

Protects your loved ones.
If you pass without naming a beneficiary, decisions are out of your hands. Your loved ones may not receive all the funds needed to live on or have immediate access to cover funeral or other costs.

You’ve added beneficiaries to your account, now what? This is not a set-it-and-leave-it-forever task. You need to review your beneficiaries annually. Here are some tips:

• Keep your beneficiaries current.
  Life events such as births, deaths or marriages require beneficiary designation updates.
• Add a contingent beneficiary.
  When you add a secondary beneficiary, you are adding a layer of protection just in case your primary beneficiary can’t receive the funds.
• Coordinate with your will and trust.
  Since beneficiary designations are independent of other estate planning documents, it is necessary to fully understand how the different aspects of your overall plan work together.
• Be aware of tax consequences.
  Many assets that are transferred by beneficiary designation can have special tax consequences. Understanding these consequences are essential for decision-making. Keep this information on hand for your beneficiaries so next time you open a new account or need to enter it online, you’re ready. The basic information you will need for each loved one is:
  • Full legal name
  • Mailing address
  • Phone number
  • Social security number
  • Date of birth

If you have questions about developing an overall financial plan or would like to have your current financial plan reviewed, schedule an appointment on Bayntree’s online calendar by selecting the date and time that is most convenient for you! You can also always reach us by emailing info@bayntree.com.

Bayntree Wealth Advisors provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.

Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.