Choosing beneficiaries is an important step in filling out financial documents. Here’s how to make sure the right people will benefit from your estate.

Many financial documents provide space for you to designate a beneficiary who will receive the money involved in the event of your death. These documents include life insurance policies, annuities and retirement savings programs such as IRAs, 401 (k) accounts, 403(b) accounts, and Keogh plans for the self-employed. Several states also allow you to designate beneficiaries for bank and securities accounts.

Unfortunately, a good many people either leave the beneficiary space blank, or scribble the first name that comes to mind without giving much consideration to the matter. This could turn out to be one of the biggest financial mistakes they ever make.

If you don’t bother to name a beneficiary, you could be allowing the state legislature of wherever you live to make that decision for you. If you name no one, a judge who knows nothing about you will choose your beneficiaries according to the laws of inheritance of your state. These could be far different from what you would have preferred.

If you name beneficiaries but choose them wrong, you can cause unnecessary pain for your loved ones. Frayed family feelings often occur because the account holder or insured person forgets to change a named beneficiary after a marriage, divorce or birth of a child.

Suppose, for example, a young man receives a life-insurance policy as an employment benefit on his first job. Being single and romantically inclined, he names his current girlfriend as his beneficiary. They soon break up and eventually marry others, but no one remembers to notify the insurance company. When the fellow dies many years later, his wife is anguished to learn that he apparently never got over his first love, because he left his insurance to her.

Some such mishaps are bittersweet. Others can be tragic. Indeed, most estate planners can recall dozens of sad variations on this theme, including people who go through an acrimonious divorce but fail to remove their ex-spouse as beneficiary of their retirement account, and folks who intend all their children to benefit equally but never get around to adding the younger children to the beneficiary form, thereby inadvertently leaving everything to the older ones who happened to be mentioned by name.

People are sometimes surprised to learn that these mix-ups can occur even when someone’s true intentions are made perfectly clear in the person’s will. The fact is, life insurance proceeds and retirement benefits generally pass outside the will, so your will could say that you leave everything to your second husband, but if your first husband is still named as beneficiary of your IRA, your present family will never see a penny of those funds.

Naming your estate as beneficiary can prevent problems like this, but it also could end up costing your heirs more in fees and/or taxes, so competent professional advice is essential before making such a change.

To avoid all the headaches and heartaches that can arise when beneficiaries are poorly chosen, make certain that the beneficiaries named on your policies and accounts really are the people you want to benefit. Contact each investment company that is involved, working whenever possible through your broker, insurance agent, or retirement plan administrator at work. Ask for a written copy or a printout of your current beneficiary designation, which will show you who the named beneficiaries of record actually are. At the same time, request the appropriate form for making changes, so you can correct any errors you notice.

Remember that your primary beneficiary can be one person, several people (such as all your children), or an entity like a trust. (If the children are minors, you will need to set up a legal guardianship.) Whoever you choose needs to be clearly and fully named. If, for instance, your children will share the proceeds of a retirement account, you may want to include the full name of each child. You also can use the beneficiary designation space to indicate where you want the funds to go in case your primary beneficiary dies before you. If the primary beneficiary is a single individual, it is a good plan to name a secondary or contingent beneficiary to stand next in line. If your siblings or your children are collectively the primary beneficiary, decide what you want to happen in case one or more of them does not survive you.

If you want a deceased person’s share to pass to his or her children, you may hear the shorthand Latin phrase “per stirpes”, which means that the children of the deceased move up the inheritance ladder to take their deceased parents place. If you would rather have your surviving siblings or children divide the deceased person’s share, the Latin phrase ‘per capita’ means that everything goes to whoever is left in the original group.

The form you are sent may not have enough room to name all the primary and secondary beneficiaries you have in mind. If necessary, write in the margins, use the back of the form, or attach extra sheets of paper, but never, never trim your beneficiary designations just to fit the space provided.

From here on, pay special attention to any paperwork that requires you to name a beneficiary. Even if the investment involved seems too small to worry about today, it could grow into significance tomorrow.

(Note: The information in this article is intended to be general in nature. Plan to discuss your particular circumstances with an attorney for how this might apply to you.)