Do Stocks Have Beneficiaries? How to Designate Them

When considering how investments transfer after one’s passing, a common question arises regarding beneficiaries for stocks. While individual stock certificates do not carry beneficiary designations, the investment accounts holding these assets can. Designating beneficiaries on these accounts is an important component of a comprehensive financial plan, ensuring your assets are distributed according to your wishes and simplifying matters for loved ones.

Understanding Beneficiary Designations for Investments

Stocks and other securities are typically held within various types of investment accounts, and these accounts allow for beneficiary designations. For non-retirement brokerage accounts, a common method is the Transfer on Death (TOD) designation. A TOD designation permits the direct transfer of assets, such as stocks, mutual funds, and exchange-traded funds, to named beneficiaries upon the account owner’s death without the need for probate. This mechanism provides the account owner with full control over the assets during their lifetime, allowing for changes to beneficiaries or withdrawals as desired.

Similarly, Payable on Death (POD) designations function for bank accounts, including checking, savings, and certificates of deposit, enabling funds to pass directly to designated individuals. The distinction between TOD and POD accounts lies in the type of assets they cover. Retirement accounts, such as Individual Retirement Accounts (IRAs), 401(k)s, and 403(b)s, require beneficiary designations upon establishment. These accounts achieve the goal of direct asset transfer outside of the formal probate process. Another method for asset transfer outside of probate is joint tenancy with rights of survivorship (JTWROS), where ownership automatically transfers to the surviving joint owner upon the death of one owner.

How to Designate or Update Beneficiaries

Designating or updating beneficiaries on investment accounts is a straightforward process requiring specific information for accuracy. Account holders typically provide the full legal name, Social Security number or Taxpayer Identification Number, date of birth, current address, and relationship for each primary and contingent beneficiary. It is also necessary to specify the desired percentage allocation for each beneficiary, ensuring the total sums to 100% for both primary and contingent groups.

Financial institutions provide the necessary forms for beneficiary designations, accessible through online account portals, firm websites, or customer service. Some employer-sponsored retirement plans may require spousal consent if an account holder wishes to name someone other than their spouse as a primary beneficiary. Forms can typically be submitted via mail, online upload, or in-person, though original signed documents are often required.

The Impact of Beneficiary Designations

Properly designating beneficiaries for investment accounts carries significant implications for estate planning and asset distribution. A primary benefit is the avoidance of probate, which is the legal process of validating a will and overseeing the distribution of a deceased person’s assets. Probate can be a lengthy and costly process, often taking anywhere from six to nine months, and involving court fees, attorney fees, and administrative expenses. By having valid beneficiary designations, assets held in these accounts can bypass probate entirely, allowing for a more efficient and private transfer directly to the named individuals.

Beneficiary designations also ensure that the account holder’s specific wishes for asset distribution are fulfilled, overriding any conflicting instructions that might be present in a will for those particular assets. This direct control over who receives specific investments underscores the importance of keeping these designations current. Regular review and updates are essential, especially following major life events such as marriage, divorce, the birth or adoption of children, or the death of a named beneficiary. Failure to name a beneficiary, or if all named beneficiaries predecease the account holder, typically results in the assets becoming part of the deceased’s probate estate. In such cases, the distribution of these assets would then be governed by the terms of a will, if one exists, or by state intestacy laws if there is no will, potentially leading to unintended outcomes.