The end of the year is fast approaching, which means the holiday season and family-time are also near. Life tends to get busy and time tends to move quickly once November hits, so if there’s an ideal time to review your estate plan, now could be it.
There are several elements to thorough estate planning, but in this post we want to focus on the important—but often overlooked—step of reviewing your beneficiary designations.
Why Your Beneficiary Designations are So Important
There’s a fact about beneficiary designations that may surprise you: in general, the assets in any retirement account, life insurance policy, or annuity will pass to the beneficiary named on that asset, regardless of the terms of a will.1 That last part is critical – an investor may think they don’t need to review their beneficiaries because all of their wishes are laid out in their last will and testament, but in the eyes of the law (and the IRS) what matters is how you’ve designated your assets on your beneficiary forms. According to Fidelity Investments, “too many people make the mistake of having outdated beneficiaries on some accounts that do not match those in their will, which inevitably creates conflicts among beneficiaries that may become a matter for the courts.” And courts are the last place you want your family.1
There are a few other ‘quirks’ to beneficiary designations that are important to know. Here are a few:
- Anyone is permitted to be a beneficiary, like your children, grandchildren, a charity, your estate, or a trust. But, you should note that when it comes to an ‘ERISA-covered plan’ like a 401(k), in many cases your spouse must provide written authorization to allow for a beneficiary that is not him or her.2
- If your beneficiary forms are misplaced or lost, the IRA custodian typically determines how the proceeds of the retirement account are distributed, based on their “default provisions.” Default provisions are different for each custodian, so you should check with yours to find out how your assets would be distributed if there is no designated beneficiary.2
- In some cases, your IRA custodian will allow you to submit customized beneficiary forms, drafted by your estate planning attorney or tax attorney. But that is not always the case! If you want to do a customized beneficiary form, check with the custodian that it is allowable first.
Get Help with Your Beneficiary Designations
The more common assets that require beneficiary designations are IRAs, 401(k)s, life insurance policies, annuities, and other forms of retirement plans (like SEP IRAs or Simple IRAs). A good rule of thumb would be to gather all of those accounts at least once a year, and make sure the beneficiary designations are exactly the way you want them. You could also give one of our Wealth Managers a call, and we can review all of your accounts/assets and guide you as to which ones require beneficiary designations. There are also other considerations like who your primary beneficiary is, versus your contingent beneficiaries (if any). WrapManager can coach you through the process.
The most important tip from this post, however, is to simply take the time to review your beneficiary designations, or ask for some help. It can be done fairly simply and quickly, and we’re here to help. Give us a call at 1-800-541-7774 or send a note to email@example.com to get started.
2. Lord Abbett