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Are Your Beneficiaries Up-to-Date?

The end of the year is a time when families often gather together. It might also be a good time to make sure you have accurately designated family members as beneficiaries in your will, insurance policies, and retirement accounts.

This is especially important if there have been changes in your life, such as the birth of a child or grandchild, a death in the family, a divorce, or a remarriage. But even if your family situation remains the same, it’s a good idea to review your beneficiary designations to be sure they are complete and reflect your current wishes.

WA_15014_Are Your Beneficiaries Up-to-Date_chart

Beneficiary Forms Generally Trump Your Will

A will is a legal document for designating your heirs and is used to facilitate distribution of your assets when your estate goes through the probate process. However, the assets in most pension plans, qualified retirement accounts, and life insurance policies convey directly to the people named on the beneficiary forms — even if they are different from the people named in your will — and are not subject to probate.

Fortunately, it’s easy to designate or change your account beneficiaries. Unlike a will or a trust, which may incur costs to update, a new beneficiary designation form can easily be filed with the appropriate financial institution or insurance company. Here are some issues to consider.

  • If you’re married, your current spouse is entitled to be the beneficiary of an ERISA-governed retirement account such as a 401(k) plan. If you want to designate your parents or children from a previous marriage as the account beneficiaries, you must obtain a notarized waiver from your current spouse.
  • It’s advisable to designate secondary (contingent) beneficiaries in the event that any of your primary beneficiaries predecease you. Otherwise, proceeds would be distributed according to the default method specified in the plan documents and/or state law.
  • Some insurance policies, pension plans, and retirement accounts may not pay death benefits to minors. If you want to leave money to young children, you should designate a guardian or a trust as beneficiary.

The use of trusts involves complex tax rules and regulations. There are expenses associated with the creation of these legal instruments. Consider the counsel of an experienced estate planning professional and your legal and tax advisors before implementing a trust strategy.

 

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.

 

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