What Types of Accounts Require Beneficiary Designations?
Life insurance policies, retirement accounts (401(k), IRA, Roth IRA), annuities, and bank accounts designated as payable-on-death (POD) or transfer-on-death (TOD) all require beneficiary designations. These assets pass directly to the named beneficiary outside of probate, which is both a speed advantage and a risk if the designation is outdated or conflicts with your wishes.
What Happens If You Don't Name a Beneficiary?
If no beneficiary is named, assets may pass through your estate and be subject to probate — a potentially lengthy and expensive court process. For retirement accounts, this can also trigger unfavorable tax treatment for heirs. Life insurance proceeds without a beneficiary may be paid to the estate, delaying distribution and potentially subjecting the funds to creditors.
What Is the Difference Between Primary and Contingent Beneficiaries?
A primary beneficiary receives assets first. A contingent (secondary) beneficiary receives assets only if all primary beneficiaries have predeceased the account holder or disclaim the inheritance. Naming contingent beneficiaries prevents assets from flowing back through the estate if your primary beneficiary dies before you, providing an important safety net.
Frequently asked questions
Can a minor be named as a beneficiary?
Yes, but minors cannot legally receive large sums directly. Assets left to a minor are typically managed by a court-appointed guardian until they reach adulthood. A better approach is naming a trust for the minor's benefit as beneficiary, which allows you to control when and how funds are distributed.
How often should I review my beneficiary designations?
Review beneficiary designations after every major life event: marriage, divorce, birth of a child, death of a named beneficiary, or significant change in your financial situation. Many people forget to update designations after divorce, inadvertently leaving assets to an ex-spouse.