Redoing Beneficiaries on Every Account Now That Work Life Is Over

When you walk out of work for the last time, one piece of estate planning work falls into view that most people have not thought about in years: the beneficiary forms on every account. Beneficiary designations are how money passes to your heirs without going through probate court. They override your will. If the form says your money goes to a particular person, that is where it goes — no matter what the will says.

For most newly retired Americans, beneficiary forms have not been touched in 10, 20, or even 30 years. The forms may still list an ex-spouse, a deceased parent, or a sibling you no longer speak to. They may list a child who is now an adult, with no contingent (backup) beneficiary if that child predeceases you. They may list one person on the 401(k) and a different person on the IRA. Cleaning all this up is one of the highest-value uses of an afternoon in your first 90 days of retirement.

The full list of accounts that use beneficiary designations is longer than most people realize. Retirement accounts: 401(k), 403(b), IRA, Roth IRA, pension, Thrift Savings Plan. Life insurance: every term and permanent policy. Annuities. Bank accounts can use a Payable on Death (POD) designation. Brokerage accounts can use Transfer on Death (TOD) designation. Health Savings Accounts. 529 college savings plans. Even some safe deposit boxes have a successor designation.

The two slots that matter most on each form are primary beneficiary and contingent beneficiary. Primary is who gets the money if you pass. Contingent is who gets it if the primary also passes before you. Many forms have been filled out for years with only the primary, leaving the contingent blank. If the primary dies in a car accident the same week as you, the money falls back into probate — exactly the mess the beneficiary form was supposed to prevent.

The rule of thumb most estate planners suggest: spouse as primary on retirement accounts, children equally as contingents, with a per stirpes designation (which sends each deceased child's share down to that child's own children). Run your specific choices past an estate attorney if you have a blended family, a child with special needs, or significant wealth.

(Sources: AARP — Beneficiary Designations; FINRA — Beneficiary Designations on Retirement Accounts; American Bar Association — Estate Planning Basics)