Your estate plan will typically include a will and often a revocable “living” trust. Many of your assets may be transferred upon your death by means of a beneficiary designation to your estate (via your will), to your trust, or to individuals. To help ensure your assets end up in the intended hands, you need to review those beneficiary designations now. To be blunt, it will be too late once you pass away.
There are several types of accounts that allow you to designate a beneficiary. As a first step, we suggest you identify your accounts that allow beneficiary designations. Consider these categories:
- 401(k), IRA, 403(b), and other retirement accounts
- Life Insurance
- Brokerage Accounts (stocks, mutual funds)
- Bank Accounts and Certificates of Deposit
Most of these will permit you to name a primary beneficiary as well as a contingent beneficiary. The primary beneficiary is just that – primary – and will receive the funds or benefits from the account upon your death. A contingent beneficiary will receive funds or benefits only if the primary beneficiary is not available (usually deceased).
You should contact the financial institution or insurance company directly to obtain their desired beneficiary designation forms. These forms will likely include instructions or guidelines the institution will require you to follow. You need to be precise in naming the beneficiary or beneficiaries and take care in directing how an account will be split among the beneficiaries if you name more than one. If you have a trust, revocable or irrevocable, whether to name a trust as beneficiary requires careful consideration. You should talk with a knowledgeable attorney to ensure the designation fits your estate plan and is properly drafted.
Make sure you keep a list of your accounts, with the precise owner and beneficiaries named. Your trustee, personal representative, and agent under a power of attorney should know the location of the list and how to access it.
Periodic reviews of your beneficiary designations are needed – at least annually. Pick a date and schedule a reminder to review your designations and your overall estate plan situation. Perhaps the new year or when you file your tax return would work for you.
In addition, any time you have or anticipate a significant life event you should consider the impact on your estate plan and beneficiaries. Life events that merit a review include:
- Death of a grantor, spouse, or beneficiary
- Marriage, divorce, or remarriage
- Birth or adoption of a child
- Other changes in your family relationships
An experienced estate planning attorney can help you work through your beneficiary designations and other estate planning reviews.