Estate Planning: Review Your Beneficiary Designations Regularly
You may think of a will or living trust as the primary place to dictate who'll receive your assets after your death. But for many people, a large portion of their assets — perhaps even most of them — will be distributed according to beneficiary designations. These generally apply to retirement accounts, life insurance policies and sometimes other financial assets as well.
Because these designations typically override instructions in a will or living trust, failing to review them regularly can lead to unintended consequences — such as passing assets to a former spouse or excluding a newly added family member. That's why it's especially critical to check on them after major life changes, including marriage, the birth of a child, divorce or the death of a loved one.
Review and Update Key Forms
Double-check whether your beneficiary designations are accurate in the required documentation for assets such as:
- IRAs,
- Employer-sponsored retirement plan and other benefit accounts,
- Life insurance policies,
- Annuities, and
- Section 529 plan accounts.
If you have any of these types of assets and haven't submitted beneficiary designation forms for them, do so immediately. If ones you completed years earlier are now out of date, change them to reflect your current situation before it's too late.
You may also be able to name beneficiaries for bank accounts and brokerage firm accounts. To do so, you usually need to complete and submit a transfer-on-death (TOD) or payable-on-death (POD) form to the bank or brokerage firm. To change beneficiaries, you'd complete and submit an updated TOD or POD form. Naming beneficiaries for these types of accounts can be helpful because it allows assets to be transferred quickly and easily without going through probate.
Important: As mentioned above, don't rely on your will or living trust to override outdated beneficiary designations. Generally, whoever is named on the most recent beneficiary form will receive the assets after your death — regardless of what other documents might say.
Check Into Spousal Consent
Be aware that if you're married, your spouse's consent may be required to make certain beneficiary changes. This can depend on the type of asset, the terms of the retirement plan or contract, and applicable federal or state law — including the relevant rules in community property states. Most assets accumulated during marriage may be treated as marital or community property, depending on where you live and how the asset is titled.
If you set up assets with you and your spouse named as joint tenants with right of survivorship, your spouse will automatically take over sole ownership if you die. This is a common ownership arrangement for real property and has the advantage of avoiding probate. But retitling assets can have tax, creditor, control and estate planning consequences. So, discuss ownership options with your tax, financial and legal advisors before proceeding.
Don't Forget To Name Contingent Beneficiaries
Many beneficiary designation forms allow you to name contingent beneficiaries — sometimes called secondary or successor beneficiaries — who receive the asset if the primary beneficiary dies before you. For instance, you might name a child, grandchild, trust or charity as a contingent beneficiary, depending on your family circumstances, tax considerations and estate planning goals.
When designating either primary or contingent beneficiaries, bear in mind that your choice can have income tax consequences. For example, who you name as beneficiary of a retirement account may affect whether the balance must be distributed within 10 years or distributions can be spread out over the beneficiary's lifetime, allowing continued tax deferral. Also, if you don't designate a beneficiary for an asset that requires one, or you name your estate as the beneficiary, the asset could have to go through probate.
Simple Yet Important
Reviewing and updating your beneficiary designations is among the simplest yet most important steps you can take to protect your loved ones and help ensure your assets are distributed as you intended. Set aside the time to review your beneficiary designations at least annually and after major life changes. If you have questions or would like a helping hand, contact your estate planning advisors.