What happens if you fail to name a beneficiary on your 401K account? or your investment account? or your life insurance policy? In true legal logic, the answer is “it depends”. Most often, the financial institution that holds the fund's assets has determined a default beneficiary in accordance with the agreement you signed when you opened the account. But in some cases, the agreement may be silent on the issue. This could result in an unwanted situation if you fail to name a beneficiary.
The Best Beneficiary Plan
Obviously, the best thing to do is to name a beneficiary at the time you open the account and to keep that beneficiary designation up to date. But you would be surprised how many people open such an account with the intention of naming the beneficiary later who never get around to doing so. Or conversely, plenty of folks fail to change the beneficiary when something changes in their life – like a divorce, death, or marriage. It is easy to contact your plan holder and ask for an updated beneficiary designation form. In some cases, you may also be able to change the beneficiary on-line. If you are married, under federal law 401(k)s, IRAs, and other tax-deferred accounts will require your spouse to sign off on the change.
The Default Beneficiary Designation
Many financial institutions will designate your spouse as the default beneficiary if you have not named someone else before you die. That might be fine – but it might not. Suppose you are separated or in the process of getting a divorce? The money you would have preferred to have gone to your children will now go to who you had hoped to be your ex-partner. And if you are not married, chances are your money will go to your residual estate and be distributed in accordance with your Will. Again, that may be what you want. But why not be specific?
Do not fail to name a beneficiary!
Remember that assets with beneficiary designations pass outside of the probate process. They are non-probate assets. They can be distributed immediately and do not have to wait for court approval. Remember, beneficiary statements trump the Will. Do not fail to name a beneficiary! Be sure they are in alignment and your assets go to who you want them to go to. This goes a long way to ensuring peace of mind by reducing family squabbles (or worse) down the line.