The term “beneficiary” crops up every now and again. Usually you’ll see it on an insurance form or hear about it in relation to a will, but despite the nonchalance we toss the term around with, beneficiary designations are incredibly important. Let’s break down the details on how and why beneficiaries matter.

What is a beneficiary?

A beneficiary can be anyone—a person or a nonprofit organization like your church or the local homeless shelter—who you designate to receive property or assets in the event of your death. This could mean specific items are intended for specific people like a necklace for your daughter or a book collection for your business partner. This could also mean you could elect to leave all your property to your spouse or divided equally amongst your children.

You can have primary beneficiaries and then secondary and tertiary beneficiaries to make a kind of succession plan. Beneficiaries are sometimes known as “PODs” or “TODs”. “POD” stands for Payment On Death and “TOD” stands for Transfer On Death, respectively.

Like a will, it can be hard to talk about beneficiary designations because it forces you to consider your own mortality—that yes, someday you too shall become a memory.

How do you set up your beneficiaries?

Beneficiaries are generally defined in two places—special forms and your will. When you purchase property, open a bank account or take out an insurance policy there’s typically an accompanying form where you name the beneficiaries of each account, property, policy, etc. You’ll typically need to set a beneficiary for your 401(k), checking and savings bank accounts, life insurance, pension, IRAs, and any annuities.

Keeping your beneficiaries updated

Making the beneficiaries the first time tends to be the easy part. Remembering to update them can be problem that comes back to haunt your family after you’ve passed. For example, let’s say you took out an insurance policy 15 years ago and designated your then spouse as the primary beneficiary.

Since that time, you divorced that spouse and now prefer your children, not the ex-spouse, to collect the insurance money at your time of your death. Unfortunately, even if you name your children as the account’s beneficiaries in your estate plan (i.e., your will) the beneficiary designation on the policy forms overrides whatever is written in the estate plan. Embolden that in your memory—financial and other account beneficiary designations take precedent over what’s stated in a will, in the eyes of the law. Yes, you’ll be gone, but you still want your hard earned cash and non-cash assets to go to the people and charities you want.

Don’t Delay: Define Designees

Now’s a great time to take stock of your financial accounts, review the beneficiary designations, and ensure all the forms are up to date. While you’re at it, it doesn’t hurt to revisit your will, especially if a big life change has occurred recently that could inspire a change in beneficiary designations. This includes a new marriage, a child’s divorce, disability of an immediate family member, or birth of a new grandchild, to name a few. Keep a copy of all IRA beneficiary forms and give a copy or access to a financial advisor and/or attorney (if you have one) you trust.