Cody Sims: 5 Mistakes To Avoid When Naming Beneficiaries

Monday, June 27, 2022 - by Cody Sims

If you’ve ever spent time working through your estate plan, you know how important it is to select and update your beneficiaries. Failing to do so can result in costly mistakes – for you and your loved ones. 

Here are five common mistakes that can easily be avoided with a bit of proactive planning:

Mistake #1 – Not naming a beneficiary on all accounts. 

Ensure you have beneficiary designations on all of your retirement, investment and banking accounts, as well as 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 need to go through the probate process (a legal process most families want to avoid for financial and emotional reasons). If this happens, your relative can lose their ability to use “stretch” payouts based on their life expectancy because the tax-advantaged status for retirement assets is lost.

Mistake #2 – Forgetting to name a contingent beneficiary on all accounts. 

Many people list the same loved one – usually a partner or parent – as the primary beneficiary on most or all accounts. If this is how you’ve handled your assets, it is important for you to also name a contingent beneficiary. This is because if your primary beneficiary passes away first and no contingent beneficiaries are listed, it’s comparable to having no beneficiary designation. If you both die at the same time, funds go into probate. 

Naming contingent beneficiaries also gives the primary beneficiary the option to execute a qualified disclaimer so some assets can pass to next-in-line loved ones. For example, a primary beneficiary may not wish to claim the assets because of tax implications or because they don’t need the assets and prefer instead to pass your gift onto another beneficiary.

Mistake #3 – Not using specific names.

One mistake many people make is listing a generic term – such as children, parents or aunts – instead of specific names in their beneficiary selections. This can be problematic, especially if you are part of a blended family. Many states won’t include or recognize stepchildren when the word “children” is listed. 

Another risk of vagueness is that a family member you’ve lost contact with may enter the picture and try to claim a piece of your remaining assets. With this in mind, make sure you use full names of each person when naming beneficiaries.

Mistake #4 – Failing to review your beneficiary selections regularly.

Beneficiary designations override your will, so it’s crucial to keep them up to date. You may need to update your choices every few years due to life changes, such as if beneficiaries have died or your relationship with them has changed. This is particularly applicable if you’ve gone through a divorce or remarried. If your ex-spouse inadvertently remains the designated beneficiary of an account, he or she may have the upper hand if the case winds up in court.

Mistake #5 – Not communicating your preferences with your partner and family. 

Communicating your legacy wishes is an important step to helping your loved ones know what to expect upon your death. While it can be tough to initiate the conversation, doing so can help reassure loved ones that you have a plan. Keep in mind that you don’t need to share the exact amount of money you plan to pass down to respective family members, unless doing so is 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 is crucial to helping ensure that your assets are handled the way you desire after you no longer have control.

Beneficiary designations can be complex, and depending on your situation, it may be hard to decide who to list as the recipient of assets. If you want a second opinion or help assessing the implications of your options, consult an estate planner and financial advisor in your area. 

* * *

Cody Sims, CRPC, AAMS, AWMA, is a financial advisor and franchise owner with Ameriprise Financial Services, LLC. in Chattanooga, Tn. He specializes in fee-based financial planning and asset management strategies and has been in practice for 27 years. To contact him, ameripriseadvisors.com/james.e.sims, 423-648-2900, and 412 Georgia Ave., Suite 210, Chattanooga, Tn. 37403. 

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC. Member FINRA and SIPC. 2022 Ameriprise Financial, Inc. All rights reserved.


Metal Supermarkets Opens On Vance Road

ChaTech Announces 2022 Technology Excellence Awards

National Tech Non-Profit Expands Staffing Footprint To Chattanooga


Metal Supermarkets has opened its newest location in Chattanooga, becoming the one-stop shop "offering speed, variety and convenience for Chattanooga professionals and hobbyists alike." Metal ... (click for more)

The Chattanooga Technology Council (ChaTech) announces the 2022 Technology Excellence Awards (TechX) will take place live and in-person on Sept. 15 from 6-9 p.m. at The Signal, 1810 Chestnut ... (click for more)

Teach Access is a national non-profit organization with active collaboration among education, industry, and disability advocacy organizations addressing the need to enhance higher education students’ ... (click for more)



Business

Metal Supermarkets Opens On Vance Road

Metal Supermarkets has opened its newest location in Chattanooga, becoming the one-stop shop "offering speed, variety and convenience for Chattanooga professionals and hobbyists alike." Metal Supermarkets specializes in the sales and distribution of all types and ranges of metal including hot and cold rolled, aluminum, copper, brass and stainless bars, tubes, angles, channel, ... (click for more)

ChaTech Announces 2022 Technology Excellence Awards

The Chattanooga Technology Council (ChaTech) announces the 2022 Technology Excellence Awards (TechX) will take place live and in-person on Sept. 15 from 6-9 p.m. at The Signal, 1810 Chestnut St. in Chattanooga. This is the third year of the TechX Awards and the first year the event will be held in-person. Dinner will be provided with your ticket cost, and tickets can be purchased ... (click for more)

Breaking News

Couple Shot In Hixson As They Lay In Bed Early Thursday Morning

Chattanooga Police said two people were shot early Thursday morning as they lay in bed at their residence in Hixson. At 1:30 a.m., Chattanooga Police responded to a shooting at 4900 Lavender Trail. Police were advised that two people suffering from non-life threatening injuries had driven themselves to a local hospital for treatment. They were a man 22 and a woman 26. ... (click for more)

Biden Administration Announces $25 Million for Wilcox Bridge, $14.6 Milllion To Dunlap For Highway 127 Intersection Improvement

U.S. Secretary of Transportation Pete Buttigieg on Thursday announced that the Biden-Harris Administration has awarded $63 million to support three projects in Tennessee from the Rebuilding American Infrastructure with Sustainability and Equity (RAISE) program to help move forward on projects that modernize roads, bridges, transit, rail, ports, and intermodal transportation and ... (click for more)

Opinion

A City In Search Of A Symbol - And Response

Assurances have been given of a much larger and varied utilization of the 141-acre former Wheland Foundry/U.S. Pipe site, not merely a new stadium for the Chattanooga Lookouts. Discussion of the proposed new stadium for Chattanooga has dominated the use of the dormant site. Additional usages of the property itself as well as “ripple effects” of the development intentionally move ... (click for more)

Roy Exum: The Freaks Of College Football

It has been almost 20 years since Bruce Feldman, a marvelous sportswriter for theathletic.com and Fox Sports, came up with the idea of identifying the “Freaks” of college football. Wait, being called a freak is a good thing, a very good thing, on a football team. It means you are so strong or so fast or so “athletic” that your own teammates and coaches stand in awe, be it in the ... (click for more)