Why Adding Beneficiaries to Investment Accounts is Crucial

The Importance of Adding Beneficiaries to Investment Accounts

“Losing a loved one isn’t just an emotional burden—it also carries an administrative load. There are flower arrangements to pick, eulogies to write and a stream of paperwork to sort through.”

Easing Administrative Burdens for Loved Ones

One way to show loved ones that you care, is by having an estate plan and communicating your wishes to them clearly, notes the article “Why You Should Add Beneficiaries to Your Investment Accounts Now” from The Street. That includes adding beneficiaries to your retirement and investment accounts. This simple step will help save heirs time, money and emotional stress at a time when they are likely to be overwhelmed with grief and paperwork.

Bypassing Probate for a Faster Inheritance Process

They’ll retain more of your estate and get it faster too. When beneficiaries are assigned to investment and retirement accounts, the assets pass directly to them. If there are no beneficiaries, the asset may have to go through probate, the legal process of settling an estate when someone dies.

Reducing Emotional Stress During Grieving

Probating an estate usually involves going to court, which is something your beneficiaries would probably prefer not to deal with during a challenging time. A typical probate case could last a year, sometimes longer, depending on where you live. During this time, your beneficiaries are not able to access their inheritance. Going to court also means court fees, attorney fees, lost time, and additional stress.

Let’s not leave out how much of a bite probate can take out of your estate. Depending on its complexity, probate can consume anywhere from 0.5% to 5% of the estate.

Key Considerations for Beneficiary Designations

Having assets transfer directly to beneficiaries lessens what can be an intense burden for heirs, while they are grieving. Once the account provider is notified of the death of the account holder, the provider typically notifies beneficiaries. The beneficiaries have to provide the correct documentation, like a death certificate, but that’s a whole lot easier than going through probate. Obtaining death certificates is usually part of the executor’s responsibility and doesn’t cost very much.

How Beneficiary Designations Override Wills

Beneficiary designations override your last will and testament. By law, a beneficiary designation determines who receives assets, regardless of what is in your will. That’s why it’s so important to make sure your beneficiary designations are up to date.

The Consequences of Outdated Beneficiary Information

What happens if you neglect to update your beneficiaries on a life insurance policy purchased when your children were young? For instance, what if you are divorced from their father, but you forget to replace him as the policy beneficiary? In that case, your ex-spouse will receive the policy proceeds, no matter how many years you have been divorced.

Simple Steps to Update or Establish Beneficiaries

It’s easy and relatively painless. Updating or establishing beneficiaries is one of the easiest parts of estate planning. Start by making a list of your accounts, which you should have anyway and contact the account custodian to find out who is listed as a beneficiary. If no one has been named, get directions on how to establish the beneficiary designation and if possible, name a secondary beneficiary.

Special Rules for Retirement Account Beneficiaries

If you have an IRA or a 401(k), your account will typically offer a beneficiary form within the account. If you have investment accounts, you’ll need to request a form from the custodian.

Spousal Consent and Waivers for Retirement Assets

Special rules for retirement account beneficiaries. There are rules about leaving retirement plan assets to a spouse, so if you want to leave those assets to children or grandchildren, your spouse will have to sign off on that, with a waiver.

State Laws Affecting Spousal Rights to IRAs

Depending upon where you live, a spouse may be entitled to have of the assets in an IRA, even if other beneficiaries are listed, unless there is written consent.

Attorney Benjamin Long

Benjamin Long is the founding attorney of Schlagel Long, LLC in Olathe, Kansas, where he focuses on estate planning and probate with a special emphasis on beneficiary strategy for IRAs, 401(k)s, life insurance, and brokerage accounts. In line with this article, Benjamin helps clients add and update primary and contingent beneficiaries so assets transfer quickly outside probate, align designations with wills and trusts (since designations override your will), and reduce delays, fees, and stress for grieving families.

Benjamin routinely guides clients through practical steps—inventorying all accounts, confirming current beneficiaries with custodians, naming backups, and obtaining written confirmations—and he builds procedures for life-event changes (marriage, divorce, births, deaths) to prevent accidental windfalls to ex-spouses or disinheritance of intended heirs. He also advises on spousal rights and waivers for qualified plans, state-specific rules affecting IRAs, and coordinating TOD/POD designations with overall estate plans to avoid conflicts.

Benjamin earned his J.D. from Washburn University School of Law, where he was inducted into the Order of the Barristers and received a Certificate in Advocacy, and his B.S. from Kansas State University. Recognized as a Super Lawyers Rising Star and a Martindale-Hubbell Client Distinction Award recipient, Benjaminn is known for clear, actionable guidance that protects families and preserves legacies through precise beneficiary planning. He also serves as adjunct faculty at Washburn Law and coaches the Kansas State University Mock Trial Team.

Benjamin E. Long - Estate Planning Attorney

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Five Top Reasons To Add Beneficiaries to Investment Accounts