by | Oct 23, 2019 | Potpourri, YouTube


Mistakes made on your beneficiary forms could prove costly for your loved ones or worse, cause your assets to be split in ways you never intended! 

In today’s video, we are talking about 3 beneficiary designation mistakes. You’ll learn:

  • Why you shouldn’t assume your will has you covered.
  • The importance of walking through the beneficiary pathways and why you need to know the difference between per stirpes and per capita beneficiary designations.
  • 4 Trigger events that should have you reviewing and updating your beneficiaries

Click here to watch the full video or read the full video transcript, below.

Are You Guilty Of These Beneficiary Designation Mistakes?

The following 3 beneficiary designation mistakes are mistakes that I see over and over again. But here’s the good news, you can rectify these mistakes in just a few little steps.

Beneficiary Designation Mistake #1: Your Will Has You Covered

Don’t assume your will has you covered because it doesn’t!  Whatever you put as your beneficiaries on your IRAs form, your transfer on death accounts, your life insurance policies, it’s going to override whatever you put on your will. Your will could say something completely different than what your beneficiaries on your policy or your account and whatever your beneficiary say is, that’s where that money’s going to transfer to upon your death.

The other mistake that I see related to your will and your estate is sometimes people will name their estate as the beneficiary. This is often a detrimental thing to do for a couple of reasons. If you name your estate instead of naming individuals, that IRA money will not transfer directly to them.

In most cases, when you name, let’s say a child, they get to open and transfer your IRA money or 401k money into an inherited IRA. This allows them to stretch that money out. They can continue to invest it and let that money grow. Importantly, they don’t have to pay the taxes up front.

If you name your estate, you won’t allow for the tax-free growth to continue and your child won’t be able to open the inherited IRA. They’ll pay the taxes on it once and then it’ll be done. So they give up a huge tax benefit and growth potential by not letting that money continue to grow.

It’s very important to be sure you always consult your estate attorney before you do anything. Don’t be penny wise and pound foolish because mistakes made on beneficiaries and not coordinating those beneficiaries with the rest of your estate documents, can prove extremely costly.

Beneficiary Designation Mistake #2: No One Has Walked You Through The Beneficiary Pathway

Let’s assume you didn’t name your spouse as a beneficiary – they have passed away, you’ve divorced, etc., and you name each of your four children as 25% beneficiary. If you die, your money gets split four ways across each of your children. Now I want you to assume, I know we don’t like to think about this, one of your children passes away. What do you want to have happen with that child’s portion of your IRA? Do you want the other three beneficiaries to receive their portion or do you want the deceased child’s portion of those assets to pass to their children?

This is the difference between per stirpes and per capita beneficiary designations. There’s a couple of ways you can do it. One way will pass to the heirs of that deceased child. The other way will pass to the other three remaining beneficiaries that are your children.

Beneficiary Designation Mistake #3: Failing To Review Beneficiaries After 4 Trigger Events

There are more but these are the big four trigger events: death, divorce, remarriage, and birth. These are the events that should really trigger you to review and update your beneficiaries.

  • Death: If someone, one of your beneficiaries dies, you’re going to want to update your beneficiaries and avoid issues.
  • Divorce: A lot of people forget to update and remove their spouse after a divorce.
  • Remarriage: It’s very important both when you get divorced and then when you remarry, to review and update those beneficiary forms so that your assets don’t get split in ways that are inconsistent with what you expected to have happen.
  • Birth: It’s important that you update your beneficiary forms when new people enter your life: child, grandchild, niece, nephew, etc.
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Ashley helps business owners exit their business and retire with financial security. As a Certified Exit Planner she specializes in helping business owners navigate the maze of decisions that need to happen from full-time running their business to retirement.

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