What Happens if There is No Beneficiary?

Posted by Amanda on October 31, 2012

My husband and I have been married for two and a half years now. We’ve gotten a kitten together, honeymooned together, rearranged furniture and painted more rooms than I care to mention. But something that we have not managed to do together is to change our beneficiaries on our joint and individual financial accounts.

To be honest, for as much as I love finances, I have never been eager to name beneficiaries. I get an account set up (most likely because of a promotion where I receive money for funding something), set up automatic withdrawals into it, and forget about it. The account is front of mind for me every few months when I calculate our net worth, but for the rest of the time it sits working for us. Several times over the last five years I have wondered which accounts have designated beneficiaries, which do not, and more importantly, what this could mean for our money if one of us passed away. What happens if there is no beneficiary? Who would our money go to? I’ve set out to not only find the answer to what would happen in the event that a beneficiary is not named, but also to take care of this important financial detail in our household for our following financial accounts: checking, savings, Roth IRAs, a pension, death benefits from our companies and an investment account.

What Happens if We Don’t Name a Beneficiary to Each of Our Accounts?

  • Our Roth IRAs: Under Vanguard’s Custodial Account Agreement, if we do not name beneficiaries then our money will first go to our spouse if we are married and second to our estate if we are not married. So it looks like without designating a beneficiary, my husband’s Roth IRA money would come to me, and my IRA money would go to him.
  • Our Investment Account: We have an investment account with Sharebuilder and they do not currently offer beneficiary designations. Upon an account owner’s death, they will send out an estate packet and then pay to the executor of the estate.
  • Our 401(K): Under the federal Employee Retirement Income Security Act (ERISA), spouses are given the primary rights to a deceased spouse’s 401(K), unless they have signed a document to waive their right. Even if you fill out a beneficiary form with someone other than your spouse, if you remain married then a court will overrule this and give it to your spouse (without the waiver). If you are single, then you must fill out a beneficiary form for your 401(K) to determine who will inherit your account. If there is no spouse and no beneficiary named (or the beneficiary is deceased), then the money will be awarded to the estate and distributed according to the deceased person’s will.
  • Pension: I had to first call my pension fund and find out if it provides death benefits to my beneficiaries or if it terminates its obligations upon my death. It turns out that my pension does not terminate upon my death. The representative told me that if I do not name a beneficiary, the money will go to my estate.
  • Our Savings Accounts: After speaking with a representative at ING DIRECT, I found out that they do not offer beneficiary designations on their savings accounts. A check is made payable to the estate in the event of death.
  • Our Checking Account: My husband and I have a joint account, so I had assumed that all of the funds would be immediately available (as they always are) to either of us in the event of a spouse’s death. However, I found that in our state of Texas there is no automatic Right of Survivorship on joint checking accounts. In the event of no Right of Survivorship on a joint account, a court must determine what the surviving spouse contributed to the account and then the surviving spouse would be given access to that. The rest of the funds would be given to the deceased’s estate. This could be a huge headache for one of us should the awful happen because most likely our checking account would be frozen until a court decided what percentage we could have access to. What about all of our automatic payment of bills that are set up and the paychecks that are automatically deposited? How would one of us continue to pay bills until the account was unfrozen?
  • Basic Life Insurance Policies: Without a named beneficiary, proceeds from my life insurance policy would go to my estate.

What Types of Beneficiaries Can We Choose?

I learned that you can name your spouse, children, grandchildren, or any individual as a beneficiary. But you don’t need to name an actual person as the beneficiary; you can also designate a trust, a charitable organization or other organizations, or an estate as the beneficiary.

It also should be noted that a primary, secondary, and different numbers of people/organizations can be named and given a percentage of the money. A secondary or contingent beneficiary should be chosen in the event that the primary beneficiary is deceased, or refuses the inheritance. In the event that a secondary/contingent beneficiary is not chosen, the money would pass to your estate.

Our Action Plan

Based on this research, it looks like Paul and I need to do the following:

  • Designate Beneficiaries for the Following Accounts: The pension, my Basic Life Insurance policy, both of our Roth IRAs, JP Morgan Chase Checking Account (held jointly, but there is no right of survivorship in Texas where we live), and Paul’s Basic Life Insurance policy. (Check!)
  • Determine Our Contingent Beneficiaries: We need to sit down and figure out who our contingent beneficiaries would be in the event that we both become deceased at the same time (either untimely, or timely). (Still need to do).
  • Learn about Estates: It looks like we need to learn about estates, how they fit into beneficiaries, wills, and trusts. (Still need to do).
  • Sign our Checking Account up as a Right of Survivorship: (Check!).

When We Should Next Review Beneficiary Designations

Changes in life necessitate reevaluating the beneficiaries we have named. We should next review our beneficiaries if we have a change of heart, if we set up a will or a trust, if there is a birth, divorce/remarriages, death, or if we open new financial accounts.

Also, if you are single and get married, you also need to review your beneficiaries (and hopefully before two and a half years into the marriage!).

Is your estate planned? Do you have a will? What do you suggest we tackle next?

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Comments to What Happens if There is No Beneficiary?

  1. This is why making a will is so important. I actually have kids, and I worried that my wife would have trouble getting to my finances if I were to be deceased so even though I’m in my 30’s I put together a will and ensured my life insurance was assigned to go to my wife, and in a worse case scenario, to the caregiver of my children (in this case the godparents).

    Joshua P



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