Why Beneficiary Designations Matter-Keep them Up to Date
February 25, 2026
When people think about financial or estate planning, their attention usually goes straight to big-ticket items like wills, trusts, and investment portfolios. Those elements are essential—but there is another component that can be just as influential in determining how your wealth is ultimately distributed: your beneficiary designations. These instructions quietly control who receives many of your most important assets, and they often do so with more authority and speed than a will ever could.
Clearly naming beneficiaries helps ensure your assets end up exactly where you intend, without confusion, delays, or unnecessary legal expense. Yet despite their importance, beneficiary designations are frequently set once and then forgotten, sometimes for decades. Over time, that oversight can lead to outcomes that no longer reflect your wishes or your family’s reality.
Why Beneficiary Designations Matter So Much
A beneficiary is the person, people, or organization (such as a charity or trust) that you officially name to receive a specific asset after your death. Beneficiaries are often named on financial accounts and legal documents.
These include life insurance policies, retirement plans like 401(k)s or IRAs, and annuities. They also include payable-on-death (POD) bank accounts and transfer-on-death (TOD) investment accounts. Some types of trusts can also name beneficiaries.
When you pass away, assets held in accounts with properly named beneficiaries usually transfer directly to the listed beneficiary(ies). This means the financial institution pays or releases the asset based on the beneficiary designation on file. It does not pass through your will. In most cases, this direct transfer avoids probate.
Probate is a court process used to settle an estate. So, the beneficiary can often receive the asset faster. It also reduces costs and administrative delays.
It’s important to keep beneficiary designations up to date, because they typically control who receives the asset even if your will says something different. You can name primary beneficiaries (first in line) and contingent beneficiaries (backup beneficiaries). They receive the asset if the primary beneficiary dies or cannot receive it.
This can help your heirs because probate can take time, be public, and cost money. By contrast, beneficiary transfers are usually faster, more private, and far less burdensome.
Beneficiary designations take precedence over your will. Even the most carefully drafted estate plan cannot override what is written on an account’s beneficiary form. If your will leaves an IRA to your children, but the beneficiary designation still names a former spouse, the former spouse will receive the account. This hierarchy makes accuracy—and consistency across your planning documents—absolutely critical.
Common Mistakes That Can Undermine Your Plan
Because beneficiary forms are often completed quickly when an account is opened, they are easy to overlook later. Some of the most common mistakes include:
Failing to name a beneficiary at all. If you don’t designate a beneficiary on an account or policy that allows one (such as a life insurance policy, retirement plan, or payable-on-death bank account), there may be no clear person or entity with an automatic right to receive the asset. In many cases, the financial institution will treat the asset as payable to your estate by default.
When that happens, the asset usually becomes part of the probate estate. This can lead to court involvement and more paperwork. It can also delay payment until someone receives the funds.
Probate can also increase expenses, including court fees, administrative costs, and potential attorney fees. In addition, because the asset must be handled through the estate, it may be exposed to creditor claims and could be distributed according to the terms of your will—or, if there is no valid will, under state intestacy laws—rather than going to the person you would have chosen.
Letting designations become outdated. Life changes—marriage, divorce, remarriage, births, deaths, and even moves—but paperwork often doesn’t keep up.It is very common for retirement accounts to still list an ex-spouse, a deceased relative, or an old trust. It is also common for life insurance policies to still list an ex-spouse, a deceased relative, or an old trust.
The same is true for POD or TOD accounts. They may still list an ex-spouse, a deceased relative, or an old trust. When that happens, the beneficiary form on file typically controls who receives the asset, even if your will says something different. Reviewing and updating these designations regularly (and after any major life event) helps ensure your money goes to the people and causes you actually intend it to.
Creating unintended or unequal outcomes. Without careful planning, beneficiary designations and personal choices can override your will or trust. This can lead to an inheritance plan that does not match your intentions.
For example, you might name only one child as the beneficiary of a retirement account or life insurance policy. This can leave your other heirs with less. This can happen even if your estate documents say assets should be split equally.
These mismatches can also trigger disputes among family members, especially when survivors perceive the outcome as unfair or inconsistent with what they were told to expect. In addition, poor beneficiary choices can cause avoidable tax or admin problems.
These may include higher income taxes on inherited retirement accounts. They may also include missed chances to spread distributions. Assets may also pass outside the estate plan. This can complicate settlement and delay distributions.
Ignoring contingent beneficiaries. This can create serious gaps in an estate plan. A contingent (or “backup”) beneficiary is the person or entity who gets an asset if the primary beneficiary cannot. This often happens if they die before you.
It can also happen if they can’t be found. It may happen if they disclaim the inheritance. It may also happen if they are legally unable to accept it. Naming a backup beneficiary is just as important as naming a primary one, because it helps ensure your money and property transfer quickly and according to your wishes.
If you do not name contingent beneficiaries, your primary beneficiary might die first. If that happens, the asset may go to your estate. It may then be distributed under your will.
If you do not have a will, state intestacy rules may apply. That can trigger probate, increase delays and costs, and potentially send assets to people you never intended. It can also create complications for accounts that pass outside a will—such as life insurance policies, retirement accounts, and payable-on-death bank accounts—where the beneficiary designation controls who receives the funds.
Each of these mistakes can derail a solid estate plan. They can add uncertainty, cause delays, and lead to unintended results. This often happens when your plan should provide clarity and protection.
How Often Should You Review Beneficiaries?
At a minimum, beneficiary designations should be reviewed once a year. Think of this as part of your regular financial maintenance—similar to reviewing your investments, insurance coverage, or estate documents.
In addition, certain life events should always prompt an immediate review, including:
● Marriage or divorce
● The birth or adoption of a child or grandchild
● The death of a previously named beneficiary
● Significant changes in your financial situation
● Updates to your broader estate plan
● Changes in personal relationships or charitable goals
Even if nothing appears to have changed, a quick review can confirm that your designations still align with your intentions and provide valuable peace of mind.
The Bottom Line
Beneficiary designations may seem like a minor administrative detail, but they play a central role in how your assets are ultimately distributed. Because they bypass probate and override your will, they deserve the same level of care and attention as any other part of your financial or estate plan.
By reviewing and updating your beneficiaries regularly, you can help protect your loved ones from unnecessary delays, reduce the risk of conflict or confusion, and ensure your assets are transferred smoothly and according to your wishes. It’s a simple step—one that can make a profound difference when it matters most.
Sources:
https://www.ameriprise.com/financial-goals-priorities/family-estate/designation-of-beneficiary
Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.