Beneficiary Designations

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A quick review of the two types

We have discussed in the past the importance of designations, but I thought it would be a good time to review what is a beneficiary, the different types of beneficiaries, and why reviewing those designations is crucial to every financial or investment account you have. For the simplicity of this article, we are going to focus on beneficiary designations for qualified retirement accounts.

Types of beneficiaries

Simply put, a beneficiary is the person, trust, or organization that receives the proceeds of your account when you pass away. Additionally, there are two main types of beneficiaries. Your primary beneficiary is whom your money passes to first when you (the account owner) die. There is also a secondary (or contingent) beneficiary. This designation is reserved for whom your money passes to should you AND your primary beneficiary perish in a common event, like an accident.

If you are married, your spouse is legally required to be designated as your primary beneficiary unless he or she signs a waiver stating they are aware of and accept that they are not being designated. This is not the custodian, investment advisor, or plan sponsor’s rule. Rather, this is a governmental policy.

There are some legitimate reasons to not have your spouse as your primary beneficiary. For example, if you have a specific estate plan or will that call for a trust to be named as your primary beneficiary. If you are single, widowed or divorced anyone you want can be designated as your primary beneficiary.

A common question

A question I receive on a regular basis is whether children be named as beneficiaries? The short answer is absolutely. Your account can be distributed in equal or unequal proportions to children. However, if your children are under 18 years old when you pass away, whoever is appointed as guardian will have control over that money. Thus, it is important to have someone you trust be appointed as guardian should you want to name children as beneficiaries.

Therefore, it is crucial for account owners to designate both types of beneficiaries. The state of residence of the account owner has a beneficiary established should a form of beneficiary not be completed. This is typically an algorithm of the account owner’s family members.

The surefire way to know that your money will be passed on to who you wish is to keep your beneficiary designations up to date. I recommend to all of my clients to complete an annual review of the designations on all investment accounts, insurance policies, and other financial accounts.

Keeping your designations up to date is crucial to every financial plan. If you take one thing away from this article, I hope it is the following: Complete a beneficiary designation review annually.

I hope everyone continues to have a great year, and as always, your advisors work for you so never hesitate to contact them with questions.


Article Written By David Wentz

David Wentz is CEO of Tax Favored Benefits, Overland Park, Kansas. Wentz is a graduate of the University of Kansas School of Law with a Juris Doctor degree. Wentz frequently speaks at various professional and business seminars about pensions, profit sharing, 401(k) plans, tax favored benefits, and investment programs. Western Equipment Dealers Association endorses Tax Favored Benefits as a 401(k) provider. No compensation is received. More information is available at www.taxfavoredbenefits.com.

Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Tax Favored Benefits, Inc. are not affiliated. Additional products and services may be available through David B. Wentz or Tax Favored Benefits, Inc. that are not offered through AIC. Securities email: dbw@taxfavoredbenefits.com

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