When Was The Last Time Your Checked Your Beneficiary Designations?

You may regularly check the balances of your retirement accounts, investments, and savings. But when was the last time you checked who is actually listed to receive those assets after your death?

Beneficiary designations are easy to overlook. You may have named a beneficiary when you opened a retirement account years ago, purchased a life insurance policy, or started a new job. Since then, you may have gotten married, divorced, had children, lost a loved one, or made significant changes to your estate plan.

The beneficiary designation you made years ago may no longer reflect what you want today.

That can create a serious estate planning problem because beneficiary designations can control who receives certain assets regardless of what your will says.

Which Accounts Have Beneficiary Designations?

Many financial accounts and policies allow you to name someone who will receive the asset after your death.

These can include:

• 401(k)s and other employer-sponsored retirement plans

• Traditional and Roth IRAs

• Pension benefits

• Life insurance policies

• Annuities

• Checking and savings accounts with payable-on-death designations

• Certificates of deposit

• Health savings accounts

• 529 college savings plans

• Employer-provided benefits

• Brokerage and investment accounts

• Mutual funds

• U.S. savings bonds

Because these assets can represent a significant portion of your estate, reviewing the beneficiaries attached to them should be part of maintaining your estate plan.

Your Beneficiary Designation Can Override Your Will

This is one of the most important things to understand about beneficiary designations.

If an account has a valid beneficiary designation, that designation generally determines who receives the asset.

Suppose your will says that your assets should be divided equally among your three children. However, you opened a retirement account years earlier and named only your oldest child as its beneficiary.

Simply changing your will may not change who receives that retirement account.

This is why an estate plan should be viewed as more than just a will or trust. Your estate planning documents and beneficiary designations need to work together.

Primary and Contingent Beneficiaries

Many accounts allow you to name both a primary beneficiary and one or more contingent beneficiaries.

The primary beneficiary is your first choice to receive the asset.

The contingent beneficiary is the person or entity who receives it if the primary beneficiary cannot or does not receive it.

For example, you might name your spouse as your primary beneficiary and your children as contingent beneficiaries.

Naming a backup can be extremely important. If your primary beneficiary dies before you and you never update the designation, the account may be distributed according to the terms of the account or applicable law. In some situations, probate could become necessary.

A properly coordinated estate plan considers what should happen not only if everything goes according to plan, but also if your first choice is no longer available.

Who Can You Name as a Beneficiary?

Depending on the account and applicable rules, beneficiaries can potentially include:

• A spouse

• Children

• Other family members

• Friends

• A trust

• A charitable organization

• Your estate

You may also be able to divide an account among multiple beneficiaries by assigning percentages to each.

However, deciding who to name is not always as simple as filling out a form.

There may be special considerations when naming minor children, individuals with disabilities, trusts, or other beneficiaries. Certain retirement and employer-sponsored accounts may also have rules concerning spousal rights.

This is one reason beneficiary designations should be coordinated with the rest of your estate plan rather than completed in isolation.

When Should You Review Your Beneficiaries?

Major life changes are a good reason to review every beneficiary designation you have.

You should consider reviewing them following events such as:

• Marriage

• Divorce

• Birth or adoption of a child

• Birth of a grandchild

• Death of a spouse or beneficiary

• The end of a relationship

• Opening or closing financial accounts

• Rolling a retirement account into a new account

• Changing employers

• A financial institution or plan administrator changing

• Significant changes to your estate plan

Even without a major life event, periodically checking your beneficiary designations can help ensure that your accounts still reflect your wishes.

Divorce Is an Especially Important Time to Review Beneficiaries

Divorce can affect virtually every part of an estate plan.

Someone may update their will after a divorce and assume their former spouse has therefore been removed from their entire estate plan. But retirement accounts, life insurance policies, and other assets with beneficiary designations should also be reviewed.

Do not assume that updating one document automatically updates everything else.

If you marry or remarry, another review is equally important. Your new spouse, children from a previous relationship, and other family members may all need to be considered as part of your updated plan.

Be Careful When Naming Minor Children

Parents naturally want their children to inherit their assets, but directly naming a minor child as a beneficiary can create additional complications.

A minor generally cannot simply take control of a significant financial account or insurance payout. Additional arrangements may be necessary to manage the property until the child reaches the appropriate age.

A trust may provide parents with greater control over how and when an inheritance is managed and distributed for a child's benefit.

Rather than simply typing a child's name onto every beneficiary form, parents should consider how those designations fit into the larger plan they have created for their children.

How Do You Change a Beneficiary?

The process is often relatively simple, although it varies depending on the financial institution and type of account.

Some institutions allow beneficiaries to be reviewed and changed through an online account. Others require a beneficiary designation form or additional documentation.

When updating a beneficiary, carefully provide all requested information and make sure the financial institution actually processes the change.

It is also a good idea to retain confirmation of the updated designation with your estate planning records.

Do not assume that submitting a request means the change was successfully completed.

What Happens If You Don't Have a Beneficiary?

Failing to name a beneficiary can create unnecessary complications.

What happens will depend on the particular account, its governing documents, and applicable law. The asset may ultimately become payable to your estate, potentially making it subject to probate.

If you die without a valid will as well, assets passing through your estate may be distributed according to state intestacy laws rather than according to your personal wishes.

Keeping beneficiary designations current can help reduce uncertainty and ensure that your assets pass according to the plan you intended.

A Simple Form Can Have a Major Impact on Your Estate Plan

An outdated beneficiary designation could potentially direct an asset to someone you no longer intend to benefit. A missing contingent beneficiary could create complications if your first choice dies before you. A designation that conflicts with the rest of your estate plan could produce a very different result than you intended.

The Law Offices of Joseph D'Urso can help you review your estate plan and determine whether your beneficiary designations are properly coordinated with your wishes.

If it has been several years since you reviewed your estate plan, or if you have recently experienced a major change in your family or finances, contact The Law Offices of Joseph D'Urso to make sure your plan still reflects what you want.