Double-Check Your Beneficiaries

Estate Planning, Investing & Retiring


What happens to your financial accounts when you pass away? They will be passed along to the beneficiary or beneficiaries designated for that account – but what happens when your beneficiaries are out-of-date? For example, what if your beneficiary passes away before you do? How about an old account where you named your children as beneficiaries, but before all of your children were born? Did you leave your account to a charity that is now defunct?

Depending on the type of account and the specific issue, your accounts may be settled in a number of ways that you would never wish upon your beneficiaries. There could be a prolonged and costly court action to resolve the rightful beneficiaries, your accounts could be resolved individually by the default governing rules for each account, or your legacy may simply be dispersed against your final wishes because you didn’t update the paperwork.

You should update your will regularly, but you must also update the beneficiaries in all of your accounts. If there is a discrepancy between your will and the beneficiary designation on accounts such as IRAs, 401(k) plans, or life insurance policies, the beneficiary designation will take precedence. At best, this leads to confusion and misdirected funds. At worst, legal action could follow.

By keeping all of your beneficiary designations up-to-date, you can prevent potential confusion upon your passing. Be proactive by making a list of all your financial accounts – retirement plans, annuities, life insurance policies, savings and checking accounts, savings bonds, health savings accounts, and similar accounts. You will probably be surprised at the length of your list.

Next, note the beneficiaries listed on each of those accounts as well as the other pertinent information regarding that account. Include the date that the beneficiary designation was made and last updated, any contingent beneficiaries (a designate in case the primary beneficiary passes away before you do), and the updated customer service contact information for each account.

When the time comes to update your beneficiaries, simply contact each company to receive a beneficiary designation form. Fill out each form, sign it, and return the form to the designated address for each company. If you prefer and it’s practical to do so, you may do this in person at each company’s office.

While you should update your beneficiary list after any major life event, you should also perform a periodic review. Get in the habit of checking your beneficiary list once a year. Choose the same time each year to establish a routine.

Make sure that you fully understand the beneficiary designation rules of each of your accounts. For example, if you name all of your adult children as your beneficiaries and one of your children precedes you in death, is that child’s share divided among the remaining siblings per the plan’s instructions, or is it directed toward his or her own children (your grandchildren)? The default rules may meet with your wishes, but why take a chance? By reviewing the beneficiary designations, you can ensure that your wishes are carried out.

Save your beneficiaries from being at the mercy of plan administrators and federal and state laws. Keep a list of all your account beneficiaries, check them regularly, and make sure you update them any time there is a significant change to the list, such as a death, divorce, or other life event. There’s no reason to add to your beneficiaries’ grief by bequeathing them a court battle to claim their inheritance.

Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.

Photo ©iStockphoto.com/monkeybusinessimages

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