beneficiary designations

How Do Beneficiary Designations Work?


Beneficiary designations ensure the efficient transfer of assets after someone’s passing. Assets with designated beneficiaries are automatically passed to the named beneficiary, regardless of the instructions in the original will or trust document. This means they are excluded from the probate estate, resulting in reduced costs and time associated with settling the estate.

Inside Indiana Business’s recent article, “Who are your beneficiaries?” explains that because the new owner is determined without the guidance of a will document, assets with designated beneficiaries are excluded from the decedent’s probate estate. The fewer assets subject to probate, the less cost and time associated with settling the estate.

Many different types of assets transfer via beneficiary designation at the original owner’s death. These include retirement accounts (IRAs, Roth IRAs, 401(k)s, 403(b)s, 457(b)s, pensions, etc.), life insurance death benefits, and the residual value of annuities. Bank and brokerage accounts can also be payable on death (POD) or transferable on death (TOD) to a named beneficiary. POD and TOD designations bypass probate–like beneficiary designations.

The owners can name both primary and contingent beneficiaries. The primary beneficiary is the first in line to inherit the asset. However, if the primary beneficiary predeceases the owner, the contingent beneficiary becomes the new owner. If there’s no contingent beneficiary listed, the asset transfers to the owner’s estate for distribution. There’s no restriction on the number of beneficiaries who can inherit an asset.

Charities can also be beneficiaries of assets. Because a charity doesn’t pay income tax, leaving a taxable retirement account or annuity to a charity will let 100% of the value go toward the charity’s mission. When an individual inherits, income tax may be due when the funds are distributed.

A trust can also be named beneficiary of an asset. This strategy is often employed when minors or those with disabilities are beneficiaries. Designating a trust as a beneficiary can be complex, so do so with the advice of an experienced estate planning attorney.

Simply naming an estate as a beneficiary is typically not a good strategy because this will subject the asset to probate, which can result in unfavorable income tax outcomes for retirement accounts.

When no beneficiaries are named, the owner’s estate will likely become the default, which leads to probate.

Take time to review your current beneficiary designations to be sure they reflect current wishes. Review these designations every five years or when life circumstances change (marriage, birth, divorce, death).

Whenever you name or change a beneficiary, verify that the account custodian or insurance company correctly recorded the information because errors are problematic, if not impossible, to correct after your death.


  1. Identify all accounts with beneficiary designations
  2. Obtain copies of existing designations
  3. Ensure accuracy of personal details (name, address, contact information)
  4. Verify Social Security number or other identification details
  5. Assess current beneficiaries
  6. Determine if existing beneficiaries are still appropriate
  7. Consider any changes in personal circumstances (marriage, divorce, birth, death)
  8. Evaluate potential tax implications
  9. Consider contingent beneficiaries
  10. Determine if contingent beneficiaries are necessary
  11. Select appropriate contingent beneficiaries
  12. Consult legal and financial professionals, if necessary  — in some instances having a beneficiary designation may not work with your estate plan; check with your advisor.. 
  13. Seek advice on complex or high-value assets
  14. Understand any legal requirements or restrictions
  15. Obtain necessary forms or documents from financial institutions
  16. Complete and submit updated beneficiary designations
  17. Maintain copies of updated beneficiary designations
  18. Keep a record of dates and methods of submission
  19. Regularly review and update
  20. Establish a periodic review schedule (annually or biennially)
  21. Stay informed about changes in personal circumstances or laws.

Additional Reading

Estate Planning Essentials for the Sandwich Generation

Estate Planning Essentials for the Sandwich Generation

The Sandwich generation refers to a generation of people who are simultaneously caring for their aging parents and their children. This group often feels “sandwiched” between the needs of their parents and their children and may face challenges in balancing caregiving...

read more
How Marital Trusts Help Protect Blended Families

How Marital Trusts Help Protect Blended Families

Navigating Marital Trusts: Securing Your Spouse's Financial Future Embarking on a journey of blending families brings its own set of joys and challenges. In this blog post, we unravel the complexities of estate planning for blended families and explore why the Marital...

read more
Essential End of Life Documents: What You Need to Know

Essential End of Life Documents: What You Need to Know

End-of-life planning is a crucial aspect of life that often goes unaddressed until it's too late. Beyond drafting wills and trusts, understanding the array of end-of-life documents is paramount for ensuring a comprehensive and legally sound estate plan. This  guide...

read more
Clean Slate: Navigating the Maze of Unwanted Subscriptions.

Clean Slate: Navigating the Maze of Unwanted Subscriptions.

In the era of digital subscriptions, keeping tabs on services that automatically renew can be a challenge. However, fear not – we've compiled a guide to help you reclaim control over your subscriptions. From user-friendly tools to convenient services, here's how you...

read more