Beneficiaries: The Overlooked Estate Planning Step Worth Revisiting This Year

As you reflect on the milestones, memories, and changes that shaped 2025, it’s a great time to check in on something that often gets overlooked: your beneficiary designations.

Whether you’ve welcomed a new child or grandchild, experienced a loss, or simply haven’t looked at your accounts in a while, reviewing your beneficiaries is one of the simplest yet most impactful steps you can take to ensure your wishes are honored and your loved ones are cared for.

What Is a Beneficiary, Really?

A beneficiary is the person (or entity) you name to receive assets from an account when you pass away. These designations are commonly found on retirement accounts like IRAs and 401(k)s, life insurance policies, and even many taxable investment accounts.

There are two main types:

• Primary beneficiaries are first in line to receive the assets.
• Contingent beneficiaries step in if the primary beneficiary is unable to receive the assets (for example, if they’ve passed away).

It’s important to name both and to keep them updated as life evolves.

Why Beneficiary Designations Matter More Than You Think

Beneficiary designations override your will. That means if your will says one thing, but your IRA lists someone else, the IRA wins. These designations are legally binding and direct the transfer of assets outside of probate, which can be a huge advantage for your heirs.

That’s why it’s so important to make sure your designations reflect your current wishes. A forgotten ex-spouse or a missing contingent beneficiary can lead to confusion, delays, or even disputes.

IRAs vs. Taxable Accounts: What’s the Difference?

When it comes to transferring assets, the type of account matters.

• IRAs and retirement accounts: These typically allow you to name beneficiaries directly. Upon your passing, the assets transfer to the named individuals, normally avoiding probate. The rules for inherited IRAs have changed in recent years, so beneficiaries may need to withdraw the funds within a certain timeframe (usually 10 years for non-spouse beneficiaries).
• Taxable investment accounts: These don’t always have beneficiary designations unless they’re set up as Transfer on Death (TOD) or Payable on Death (POD) accounts. If no designation is made, the assets may go through probate, which can be time-consuming and costly.

Adding TOD or POD instructions to taxable accounts is a simple way to streamline the estate process and ensure your assets go where you intend.

Per Stirpes vs. Per Capita: Structuring Generational Inheritance

When naming multiple beneficiaries, especially children and grandchildren, you may come across the terms “per stirpes” and “per capita.” These designations determine how assets are divided if one of your beneficiaries passes away before you do.

• Per stirpes means “by branch.” If a beneficiary dies before you, their share passes to their descendants. For example, if you name your three children as equal beneficiaries and one passes away, their one-third share would go to their children (your grandchildren).
• Per capita means “by head.” If a beneficiary dies before you, their share is divided equally among the remaining living beneficiaries. Using the same example, if one child passes away, the remaining two children would each receive half of the estate.

Choosing between per stirpes and per capita depends on your wishes for how assets should flow through generations. Per stirpes tends to preserve family lines, while per capita simplifies distribution among surviving beneficiaries.

Common Mistakes to Avoid

• Not naming a contingent beneficiary: If your primary beneficiary is unable to receive the assets, and no contingent is listed, the account may default to your estate, triggering probate.
• Outdated designations: Life changes due to marriages, divorces, births, and deaths. Your beneficiary list should change too.
• Naming minors without a plan: If a minor inherits assets, a court may need to appoint a guardian or set up a trust, which can complicate things.
• Assuming your will covers everything: As mentioned earlier, it doesn’t. Beneficiary designations are separate and supersede your will.

A Simple Step That Can Make a Big Difference

As you begin the new year, take a few minutes to review your beneficiary designations. It’s a small task that can make a big impact on your legacy and your loved ones’ financial well-being.

If you’re unsure where to start, or if your situation has changed recently, reach out to your advisor. We’re here to help you navigate the details and make sure everything is aligned with your goals.

Disclosures:

Apella Capital, LLC (“Apella”), DBA Apella Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Apella Wealth provides this communication as a matter of general information. Any data or statistics quoted are from sources believed to be reliable but cannot be guaranteed or warranted.