In the normal course of piecing together your financial puzzle, you are likely to create many different beneficiary designations. Your retirement plan, your life insurance policy, your bank and brokerage account, your pension or annuity contract all require a beneficiary to be named. As simple as it may seem to scribble a name on the beneficiary line, if careful thought is not given to how and why a beneficiary is selected, things can get very complicated for you and your family at the worst possible time. At your death, beneficiary designations are irrevocable, so it’s important that they reflect your current wishes and the needs of your family.
Beneficiary designations should be coordinated with your current financial plan with specific consideration for your family’s current needs and future goals.
They should consider the capacity of each family member for managing money. Children should not be made direct beneficiaries except through a trust that directs the distributions.
They should be coordinated with your will and trusts. Beneficiary designations supersede the provisions of a will, so, to minimize confusion and friction they should reflect the intent of your will. Unless you make your trust the beneficiary of your accounts, proceeds will be distributed outside the trust which could circumvent your intent and possibly create unintended tax consequences.