RISK 5

Beneficiary Risk

Your client may have wonderful intentions when selecting a beneficiary, yet making the wrong designations can have unintended negative consequences.

While it is possible for many types of assets to bypass probate when a beneficiary has been named, there are pitfalls to avoid.


Not naming a beneficiary.

Without a beneficiary, the account will be subject to probate and the state will determine how to distribute the money.

Not updating beneficiary elections after marriage, divorce, or remarriage.

Make sure your client isn’t unintentionally passing money to an ex-spouse, or an ex-spouse’s children, or a new spouse’s children, instead of their own children.

Naming minor children as beneficiaries.

A minor child cannot legally own assets. Consider passing the assets into a trust that can be distributed at an age your client chooses.

Naming a mentally disabled person as beneficiary.

The disabled person may lose government assistance if he or she receives the benefit directly.

Not reviewing beneficiary designations on a regular basis.

Things change as life progresses. Make sure your clients’ beneficiary designations match today’s needs.

Key Point

Help your clients review the beneficiary forms for each of their financial assets.