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Financial • 5 minute read

The Beneficiary Blues: Sending Your Money In The Right Direction

The Beneficiary Blues: Sending Your Money In The Right Direction
By Kristina James
Published by Ruby

Ruby helps you and your family work together to prepare and organize finances.

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Legal documents like wills, titles, deeds, and health insurance policies often become outdated when it comes to beneficiaries. Horror stories about people who accidentally left their financial legacy to an ex because their documents were not updated happen more often than you’d like to imagine.

 

What does Beneficiary Mean…

A ​beneficiary is a person or institution who receives money or property when somebody dies. A beneficiary can be named within a will, but can also be listed in the small print of financial accounts like a life insurance policy, annuity, or retirement account.

 

… And Why Does it Matter?

It matters because, in some cases (see below), your designated beneficiary holds more weight than your will.

This means that, whatever you say in your will, it’s the name by “beneficiary” on the piece of paper that gets the money.

 

Let’s start at the beginning.

Where there’s a will…

With a will, your loved ones must still go through the probate process to get what you left them. This can get expensive, and it can take months or even years if a disgruntled relative starts a fight about your assets.

Without a will, your possessions become part of your estate, with it left to the legal system to sort things out. For your heirs, this means more time wasted, more frustration, and more fight for what is their rightful inheritance. (For more on this, read Why You Should Draft a Will.)

… there’s a way.

With beneficiaries, you list who will get the money and what percentage each will receive. Then, after you pass away, your beneficiaries present a death certificate to the financial institution and fill out a form. The check arrives in a few weeks. There’s no probate, no court involvement, no expense. Your money ends up in the right hands, with no hassle.

 

So what outweighs a will?

Here’s a list of things that aren’t covered by a will. These assets go directly to the beneficiaries named on the account documents – they do not have to go through probate.

  • Retirement plan assets from plans like IRAs and 401(k)s
  • Life insurance policy proceeds
  • Life insurance policies that have a space for you to designate beneficiaries.
  • Annuities
  • Payable on Death (POD) bank accounts
  • Transfer on Death (TOD) investment accounts
  • Stocks
  • Bonds
  • Brokerage Accounts
  • Property with joint tenancy
  • Revocable living trust
3 Tips for Keeping Your Beneficiaries Up to Date

1. Triple Check Your Beneficiaries.

Are you sure you’re leaving what you want to who you want?

The ugly truth is that if you don’t make sure both your primary and secondary beneficiaries are up-to-date, a previous beneficiary could inherit your retirement plan money, no matter what your updated will says.

  • Your primary beneficiary is the first person in line to inherit.
  • The secondary beneficiary inherits if the first person cannot (for example if they have already died) or signs a legal document saying that they give up their claim to the inheritance.

By keeping your secondary, and contingent (anything after secondary!) beneficiaries up-to-date, you will make sure your property and possessions are still inherited in line with your wishes, in case anything happens to your primary beneficiary.

None of us want to think about dying. But when we do it’s often in terms of who will “go first”. What a lot of us don’t think about are things like accidents, when both spouses, or member of two generations, could be involved. It is these kinds of unpredictable tragedies that mean we need to think deeper than just “primary” beneficiaries.

 

2. Change in family status? Change Your Beneficiaries.

When your family changes, one of the first things you should do is update your beneficiaries. This includes:

  • Getting married.
  • Having children.
  • Experiencing divorce.
  • Losing a loved one.

Every time you make a change, make sure that your beneficiary designations are updated accordingly.

 

3. Review your beneficiary selections annually.

Most people keep the same beneficiaries for many years, so it may help to review your selections annually. Because so much time can pass between changes, it’s easy to overlook this simple, important update. Make it easy and set a calendar reminder now.

A Plan to Keep Your Beneficiaries Up to Date

First, create a document that lists all your assets in one place. List the contact person who is responsible for holding your property (likely they are a manager at a financial institution.) Also, designate for your own records who are the primary and secondary beneficiaries you have listed and when they were last updated.

 

Download Ruby’s free asset/beneficiary inventory sheet:

 

Download

 

Second, create a recurring task on your calendar annually to update your primary and secondary beneficiaries.

Next, store the details in a place where they can be easily accessed by those who need to find them.

The Ruby Vault is a safe place to store all the information your family needs to care for a loved one. We guide you to gather and store important documents and members of your Circle can access information quickly, from anywhere.

 

It’s a small thing with huge consequences.

Don’t allow your preferred beneficiaries to lose out to your outdated ones! Help your loved ones avoid the disaster of probate. Making sure you have an inheritance to pass down is one thing — making sure it goes to the right place is another.

Caring for a loved one is hard, you don’t have to do it alone.

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By Kristina James