Beneficiaries: The Ultimate Override
Did you know that a beneficiary designation on a retirement account overrides your Will? Keeping these up to date is critical.
What is a Beneficiary Designation?
It is a contract with a financial institution (bank, brokerage, insurance company) stating who gets the money in that specific account when you die.
- Primary Beneficiary: The first in line to receive the assets.
- Contingent Beneficiary: Receives the assets if the primary beneficiary has already passed away.
The "Ex-Spouse" Trap
If you get divorced and update your Will but forget to update your 401(k) beneficiary, your ex-spouse will still get the money. The court will almost always side with the contract over the Will.
Per Stirpes vs. Per Capita
These legal terms determine what happens if a beneficiary dies before you.
- Per Stirpes: Their share goes to their children.
- Per Capita: Their share is split among the other surviving beneficiaries.
Real Life Examples
Mrs. Williams
Teacher . $60k . 20% Savings
She reviews her beneficiaries every January. When her sister got married, she updated her contingent beneficiary designation within 24 hours to ensure her nieces were properly protected.
Mr. Johnson
Average Joe . $90k . 10% Savings
He set his beneficiaries when he opened his accounts 15 years ago. He has since divorced and remarried, but his ex-wife is still the primary beneficiary on his $400k 401(k). He "plans to get around to it" eventually.
Mr. Smith
Mr. Popular . $120k . 5% Savings
He left the beneficiary section blank on his life insurance policy. This means the $500k payout will go to his "Estate," forcing his family into a 12-month probate battle before they can touch a dime.
Learn More
Avoid common mistakes:
Community Discussion (0)