Cody Simms: Five Mistakes to Avoid When Designating Beneficiaries


If you’ve ever spent time preparing your estate plan, you know how important it is to select and update your beneficiaries. Failure to do so can lead to costly mistakes – for you and your loved ones. Here are five common mistakes that can easily be avoided with a little proactive planning:

Mistake # 1 – Not naming a beneficiary on all accounts.
Make sure you have beneficiary designations on all of your retirement, investment and banking accounts, as well as on your insurance policies. If you don’t name a beneficiary on one or more accounts, your estate becomes the beneficiary of that account and your loved ones will have to go through the probate process (a legal process most families want to avoid for financial and emotional reasons). .

If this happens, your parent may lose their ability to use “stretch” payments based on their life expectancy, as the tax-advantaged status for retirement assets is lost.

Mistake # 2 – Forgetting to name an alternate beneficiary on all accounts.
Many people identify the same loved one – usually a partner or relative – as the primary beneficiary of most or all of the accounts. If this is how you have managed your assets, it is important that you also name a potential beneficiary. Indeed, if your primary beneficiary dies first and no secondary beneficiary is listed, this is comparable to the absence of a beneficiary designation. If you both die at the same time, the funds go towards probate.

The designation of subsidiary beneficiaries also gives the primary beneficiary the possibility of executing a qualified disclaimer so that certain assets can be transferred to their relatives. For example, a primary beneficiary may not wish to claim the assets because of tax implications or because they do not need the assets and instead prefer to pass your donation on to another beneficiary.

Mistake # 3 – Not using specific names.
A mistake that many people make is to list a generic term – like children, parents or aunts – instead of specific names in their beneficiary selections. This can be problematic, especially if you are part of a step family. Many states will not include or recognize stepchildren when the word “children” is listed. Another risk of inaccuracy is that a family member you have lost contact with may step in and attempt to claim some of your remaining property. With that in mind, be sure to use each person’s full names when naming beneficiaries.

Mistake # 4 – Failing to regularly review your recipient selections.
Beneficiary designations take precedence over your will, so keeping them up to date is essential. You may need to update your choices every few years due to changes in your life, such as if beneficiaries have passed away or your relationship with them has changed. This is especially applicable if you have gone through a divorce or remarried. If your ex-spouse inadvertently remains the named beneficiary of an account, they may have the upper hand if the case ends up in court.

Mistake # 5 – Not communicating your preferences with your partner and family.
Communicating your inheritance wishes is an important step in helping loved ones know what to expect after your death. While it can be difficult to start a conversation, it can help reassure those around you that you have a plan. Keep in mind that you don’t need to share the exact amount you plan to pass on to your respective family members, unless that’s your preference. Instead, share high-level details that give your family insight into how you intend to share your hard-earned wealth.

Estate planning isn’t the most enjoyable part of planning for your financial future, but it’s crucial to making sure your assets are managed the way you want them to be once you’re out of control. Beneficiary designations can be complex and, depending on your situation, it may be difficult to decide who to register as the asset beneficiary. If you want a second opinion or help weighing the implications of your options, consult an estate planner and financial advisor in your area.

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James “Cody” Sims, CRPC, AAMS, AWMA, is a Financial Advisor and Franchise Owner at Ameriprise Financial Services, LLC. or a financial advisory firm of Ameriprise Financial Services, LLC. in Chattanooga. He specializes in fee-based financial planning and asset management strategies and has practiced for 26 years. To contact him: ameripriseadvisors.com/james.e.sims, 423-648-2900, 412 Georgia Ave., Suite 210, Chattanooga, Tn. 37403


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