Beneficiary designations have a significant impact on your estate plan and the final closure. If you do not name beneficiaries in your will, retirement accounts or life insurance plans, it can stall the closure of your plan or your assets could end up in the wrong hands.
According to Securian, you can name anyone as a beneficiary, including family, friends, trusts or charities. To avoid problems, name appropriate beneficiaries and update your estate plan regularly.
Understanding primary and contingent beneficiaries
Some people only name a primary beneficiary but forget about secondary or contingent beneficiaries. If something happens to a primary beneficiary, your assets or accounts could end up in limbo. For example, if you set a primary beneficiary who passes away before you do, you need a secondary beneficiary to receive the benefit. If you do not name beneficiaries, the people you care about may not receive the benefits you intend for them.
In the case of a 401(k), if you do not have a beneficiary, then your assets become a part of probate. The court has to settle your finances and not only does this take time, but it does not guarantee the people you care about will receive your assets.
Changing your beneficiaries
You have the capacity to change your beneficiaries whenever you want to. Generally, it is easy to change beneficiaries on your account; you just have to remember to do it. Often, people need to change beneficiaries after a divorce or a fallout with a close family member or friend. If you do not keep your estate plan up to date, then an ex or someone else may end up with the benefits.
Keep in mind that if you transfer ownership of an account, you can no longer change the beneficiaries.