Divorce, Part 5 of 7: The Importance of Beneficiary Designations

A beneficiary designation is a way to cause an asset to pass to a beneficiary you’ve named.  The process for the beneficiary to claim this asset is much simpler and faster than probate.  Also, beneficiary designations are not usually affected by your Will.

Divorce may prevent your ex-spouse from receiving your assets if you die.  However, rules on how beneficiary designations are treated vary by asset.  There are various types of beneficiary designations you can make.  You can name a beneficiary on life insurance, retirement accounts (IRAs, 401ks), investment accounts, and annuities.  You can make a payable on death designation on a bank account.  You can do a transfer on death deed for property or name someone to receive your car on the car title.

You should review financial statements, talk to your financial advisor and CPA, and sit down and brainstorm.  Do whatever it takes to assemble a comprehensive list of your assets that might have beneficiary designations.  Go down the list and change the beneficiary designations (if necessary) to reflect your wishes about who should receive that asset.  It is very important to consider your Will in the process, and whether or not you want the same beneficiaries as those named in your Will to receive the asset.  If you have minor children, you probably want to name a testamentary trust for their benefit as the beneficiary of your assets.

Review beneficiary designations and update them if necessary. 

  • Talk to your divorce lawyer to make sure that the beneficiary changes are consistent with any obligations you have under the divorce judgment.
  • Talk to your estate planning lawyer to make sure the beneficiary designations are consistent with your estate plan and won’t cause any tax problems.

 

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