(MONEY Magazine) – Chances are, you haven't given as much thought as you should to whom you've named as beneficiaries on your life insurance policies, retirement plans, annuities or living trusts. So listen up. "The people you list as your beneficiaries will get what you intend to leave them more efficiently than anything you'll bequest through your will," says Kathleen Adams, a financial planner in Los Angeles. The chief reason: Money left to adult beneficiaries won't have to go through probate, the sometimes time-consuming and costly court procedure that validates a will. Probate can last two years or more and cost your estate thousands of dollars in court and attorney fees.

Updating beneficiary designations to reflect changes in your life, such as your marriage or the birth of a child, is critically important too. But estate planners say that many people fail to keep their designations up to date. "Whenever I do estate-planning seminars, I ask who has never changed their beneficiary designations, and it's always the majority of the group," says Gerry Goldsholle, a San Francisco estate-planning attorney.

So how should you decide which names belong on those dotted lines? Estate planners offer these three tips:

--Your primary beneficiaries should be people close to you with the greatest financial need. "Generally, if you're married, you'll want to name your spouse as your primary beneficiary, with your children as secondary beneficiaries," says Robert Clofine, an estate attorney in York, Pa. "If you're single, you may want to name your siblings first and your parents next." You can have more than one primary beneficiary, but you'll need to say on the form how they'll split up future proceeds.

--Keep tax considerations in mind. For sizable retirement plan distributions of $155,000 a year or more, you may be able to avoid a tax penalty by naming your child and your spouse as co-primary beneficiaries. Here's why: Whoever you name must start withdrawing at least enough of the retirement money to exhaust the account over his or her lifetime, starting at age 70 1/2. This year, someone 70 1/2 (such as a spouse) would be socked with a 15% tax penalty if the plan exceeds $1 million, since the annual distribution would top $155,000--the point at which the penalty kicks in. (As Your Taxes explains on page 167, Congress suspended this penalty starting in 1997, though it will be reimposed in 2000.)

But you could reduce or even eliminate the penalty by naming your spouse and adult child as co-beneficiaries. Then they can base their withdrawals on their joint life expectancy, thus requiring them to take out less each year than your spouse alone otherwise would. The IRS limits the amount of the age differential to 10 years, though. So if your husband is 70 and your child is 40, the IRS assumes your son or daughter is 60.

--Consider setting up a living trust before naming your minor children or grandchildren as primary beneficiaries. Money left to a minor--under age 18 in most states--generally must go through probate. But you can avoid it by hiring a lawyer to set up a revocable living trust (cost: $500 to $3,500, depending on the complexity of the trust) and naming the kids as beneficiaries. Then you turn over to the trust ownership of whatever you want to leave the kids. You'll need to name a trustee who will control the money if you and your spouse die before the child is an adult or is capable of handling the cash.