Should You Keep Beneficiary Designations Up to Date?

Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k) or annuity?
Should You Keep Beneficiary Designations Up to Date?

Should you keep beneficiary designations up to date? If you don’t immediately know who your beneficiaries are, then it’s definitely time for a beneficiary designation check. Even if you think you remember, every now and then, they should still be checked, according to an article “Are your beneficiary designations up to date?” from Community Voice.

Your choices and priorities are likely to evolve over time. When did you open your very first IRA? Do you even remember when you purchased your life insurance policies? If it was back in the 1990s, for example, chances are good that the people in your life have changed, too.

When we filled out those forms on paper, back in the day, it was easy to assume that they’d be the same forever. But, in five, ten, or twenty years, big changes may have happened in your life. Your beneficiary designations and your estate plan need to reflect where you are now and not where you were then.

Smart people will typically review these items each year. If you’re still working, your employer may have changed custodians for your retirement plan and your insurance policy. When a new custodian takes over, sometimes beneficiary designations can get lost in the change.

If you don’t have a beneficiary designation on these accounts, or any account where you have the option to name a beneficiary, you may have a bigger problem. The tax-focused part of your estate plan could be undone if you thought your 401(k) would go to your spouse but your spouse predeceased you.

If you don’t want your spouse to inherit your 401(k) or other retirement plan, your spouse will need to waive the inheritance in writing if you want those assets to go to children or others. By law, spouses are protected when it comes to certain kinds of retirement accounts.

What most people don’t realize is that whatever choice you make on the beneficiary designation overrides anything in the wills. If you named someone to be your beneficiary, whether or not they are in your life, they will still receive the inheritance. Your family can try to fight it out in court, but they most likely will lose.

Another pitfall: naming the financial whiz in the family, then forgetting to review documents. Problems can arise if the whiz-kid moves far away or dies. If you make big changes to how you wish your estate to be distributed and neglect to tell the person named to carry out your updated wishes, they spend a lot of time trying to effectuate an out-of-date plan.

If you name your spouse as a beneficiary, the tax consequences are simpler. However, you still need an estate plan to plan for when the second spouse dies. In other words, you need an estate plan, including a will and trusts, and you also need to review it at least every three to five years.

Make sure your beneficiary designations up to date. If you have any questions or want help with your estate planning, please call your estate planning attorney in Davie, Florida.

Reference: Community Voice (September 30, 2022) “Are your beneficiary designations up to date?”

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