Edited on 29 June 2021
Are your beneficiary designations out of date? Do you even know which accounts have beneficiaries and whom you’ve designated? It’s easy to lose track of what should go where, but it’s one of the most important pieces of your proactive financial strategy.
Use our quick guide to review and update your financial accounts and safeguard your assets.
Remember that beneficiary forms typically have precedence over last wills and testaments in court, so those with assets to pass on to heirs should regularly update them to ensure that your money isn’t going to an ex-spouse, or the family of a deceased relative. There are also tax advantages associated with retirement funds passed via a beneficiary, so make sure you include your beneficiary designation as part of your proactive tax strategy.
WHY #1 : Make sure your assets go to the intended recipients (and avoid probate).
When you designate a beneficiary for certain accounts, that person inherits the assets in the account, regardless of what your will might say. That’s why updating your will periodically might not be enough. Typically, you’ll have beneficiaries for each of your IRAs, your 401(k) or other retirement plans, annuities and insurance policies. The only way to ensure your assets will go to the intended recipients and avoid a long drawn out legal process (probate) is by reviewing your designations on an annual basis.WHY #2 : A life event alters your beneficiary designations.
Since you made your initial beneficiary choices, you might have married, had children or divorced. Some of the beneficiaries you chose could have married, divorced or passed away, meaning that their names, addresses or ability to be a beneficiary are no longer up to date. Other circumstances could have changed so you no longer want your original choices to be the beneficiaries - and don’t forget that this applies to organizations as well as individuals.. Going through your list of beneficiaries will help you determine if the right recipients are accounted for, and if you need to make changes.WHY #3 : Your wealth increases or decreases.
Maybe you sold your business or inherited a trust. Or you’ve experienced poor investment portfolio performance. As your wealth changes, you’ll need to consider how it affects your estate planning, and whether or not your beneficiaries still fit with your strategy. Now we have discussed the reasons to update your beneficiary designations, then how do you proceed to review and organize?HOW #1. Obtain copies of the designations for the following (when applicable):
- Will
- Insurance policies
- Bank accounts
- Retirement savings accounts (IRAs, 401(k)s, etc.)
- Company benefits
- Pension
- College savings accounts
- Annuities
- Investment accounts
HOW #2. Request copies if your records are missing.
Make sure to request any copies from the above list if you don't have them.HOW #3. Review the designations.
Make sure that assets are going where you want and that you’re minimizing taxes.HOW #4. Send in revised designations to the account custodians.
Obtain a written acknowledgment for each change you make to your beneficiary designation. Please be aware that banks and insurance companies sometimes lose forms, and that could thwart your careful planning.HOW #5. File the acknowledgements with your will and other estate planning documents.
Review your designations at least once a year to make sure they are still appropriate. They may be simple forms, but they’re too important to ignore.As always, feel free to call should you have any questions or concerns regarding your tax situation.