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What Your Beneficiaries Need to Know


What do you do when an account owner passes away?

If your loved ones have invested, saved or insured themselves to any degree, you may be named as a beneficiary to one or more of their accounts, policies or assets in the event of their deaths. While we all hope “that day” never comes, we do need to know what to do financially if and when it does.

Legally, just who is a beneficiary? IRA’s, annuities, life insurance policies and qualified retirement plans such as 401(k)’s and 403(b)’s are set up so that the accounts, policies or assets are payable or transferrable on the death of the owner to a beneficiary. This is usually an individual named on a contractual document that is filled out when the account or policy is first created.

In addition to the primary beneficiary, the account or policy owner is asked to name a contingent (secondary) beneficiary. The contingent beneficiary will receive the asset if the primary beneficiary is deceased.

Some retirement accounts and policies may have multiple beneficiaries. Charities are also occasionally named as beneficiaries. If you have individually listed one (or more) of your kids or grandkids as designated beneficiaries of your 401(k) or IRA, that designation will usually override any charitable bequest you have stated in a trust or will. (1)

A will is NOT a beneficiary form. When it comes to 401(k)’s and IRA’s, beneficiary designations are commonly considered first and wills second. Be mindful of who you select. If you willed your IRA assets to your son in 2008 but named the man who is now your ex-husband as the beneficiary of your IRA back in 1996, those IRA assets are set up to transfer to your ex-husband in the event of your death. (1)

If a retirement account owner passes away, what steps need to be taken? First, the beneficiary form must be found, either with the IRA or retirement plan custodian (the financial firm overseeing the account) or within the financial records of the person deceased. Beyond that, the financial institution holding the IRA or retirement plan assets should also ask you to supply: