How Can You Avoid Common Pitfalls When Naming Beneficiaries on Your Accounts? by Troy C. Kiefer

Choosing beneficiaries for your financial accounts, like retirement funds, life insurance, and bank accounts, seems simple, but mistakes can lead to serious problems. One common pitfall is failing to update your beneficiaries. Life changes, such as marriage, divorce, or the birth of a child, should prompt you to review and update your beneficiaries. Failing to do so may leave assets to an ex-spouse or exclude a new family member.

Another mistake is naming minors as beneficiaries. Minors cannot directly receive funds, so naming them without setting up a trust or appointing a guardian can cause legal complications. Setting up a minor’s trust can ensure the money is managed properly until the child reaches adulthood.

Many people also overlook naming contingent beneficiaries. If your primary beneficiary passes away before you, your assets may end up in probate. Always name a contingent beneficiary to avoid this scenario.

If you have a loved one with special needs, naming them as a direct beneficiary could jeopardize their government benefits. Instead, consider setting up a Special Needs Trust to provide for them without affecting their eligibility for support.

Regularly reviewing your beneficiary designations with an attorney can help protect your loved ones and ensure your assets are distributed according to your wishes.