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Everyday Finances

5 Reasons to Add Beneficiaries to Your Accounts

By May 20, 2020May 26th, 2024No Comments

It’s important to have your finances in order while you’re living, but it’s just as important to have things prepared for your spouse, children and/or loved ones.

Having your finances in place for the unexpected includes adding beneficiaries to your accounts. A beneficiary is an individual that receives a benefit, which is typically a monetary advantage, such as a distribution from a bank account, trust, will or life insurance policy.

Knowing who your beneficiaries are can keep your loved ones at ease because they will be able to properly make arrangements on your behalf and take care of any bills and business you may be leaving behind. 

If you have yet to add beneficiaries to your credit union accounts, the time to do so is now.

Here are 5 reasons why you should always include beneficiaries:

1. Your beneficiaries keep more money and get it faster

If your beneficiaries are already assigned to your investment or retirement accounts, the assets will pass to them. If not, they may have to go through probate, a legal process for settling an estate after someone dies.

Depending on your state and the complexity of the estate, probate can eat up 0.5% to 5% of your estate, according to Riley Poppy, a certified financial planner and the founder of Ignite Financial Planning in Seattle.

2. It eases stress for your heirs

Taking care of this simple step can ease a heavy burden for your beneficiaries, so they’re not untangling your finances while they’re grieving. 

Once an account provider is notified of the death of an account holder, the provider typically notifies beneficiaries, which can save heirs from having to locate accounts. The beneficiary will need to provide necessary documentation, like a death certificate, but that process is significantly cheaper and less time-consuming than probate.

3. Beneficiaries can override your will

If you have beneficiaries listed, those elections will typically override your will. That makes beneficiaries — up-to-date ones — extremely important. If you’ve been married twice, and you forget to change your beneficiary elections from your first spouse to your second, your money could go to your ex when you pass away — even if your will states otherwise.

4. It’s a quick and painless process

If you have a retirement account, like a 401(k) or an IRA, your account will typically offer a beneficiary form within the account itself. You can select your beneficiaries when you create your account or revisit them later.

5. You recently experienced a life change

After a big life change, like getting married or having a child, it’s important to update or add beneficiary elections right away. No one likes to think about an unexpected death — especially not right after a happy event — but it can happen, so it’s best to be prepared.

Keep in mind, there are some laws that govern leaving retirement plans to a spouse. For 401(k)s, for example, your spouse will typically inherit the account unless they sign a written consent form waiving their right to it. If you want to leave your 401(k) to your adult children, it isn’t enough to list them as beneficiaries — your spouse has to sign off.

In some states (called community property states) spouses can be entitled to half of the assets in an IRA — even if other beneficiaries are listed — unless you have written consent. Be sure to research your state’s laws to ensure your money goes to whom you want it to.

Estate planning can get complicated, so if you’re not certain of how things could unfold have an estate planning attorney check your work.