Beneficiary designations are an important aspect of financial and estate planning that shouldn’t be overlooked, but for many, it is a responsibility that is often ignored or postponed. Whether you have trusts, retirement accounts, life insurance policies, or other investments, keeping your beneficiaries and their contact information up to date can prevent complications and ensure your wishes are carried out at your passing.
A primary reason for keeping beneficiary designations up to date is to avoid unintended consequences. Life changes such as marriages, divorces, births, and deaths can all impact distributions from your accounts and/or policies. Failing to update beneficiaries can lead to disputes among family members or even legal battles over the distribution of your estate. By regularly reviewing and updating your beneficiary designations, you can prevent these potential conflicts and provide clarity for your loved ones.
Another reason is the potential financial impact of outdated beneficiary information. If a named beneficiary has predeceased you or if relationships have changed, your assets might not be distributed according to your wishes. These situations could result in delays as the rightful beneficiaries are identified and located, potentially subjecting your assets to probate fees and attorney expenses.
Up-to-date beneficiary designations can also help ensure that your estate planning efforts align with your overall financial goals. Whether you intend to provide for family members, ministries or other charitable organizations, accurate beneficiary information ensures that your assets are distributed efficiently and according to your wishes.
The process of updating beneficiary designations is straightforward. Start by reviewing your accounts and policies that have designated beneficiaries, including retirement accounts (IRA, 401(k), 403(b), etc.), life insurance policies, annuities, trusts, and any payable-on-death bank accounts or investment accounts. If an update or change is needed, contact the financial institution or insurance company to request a beneficiary change form and update the information accordingly. Keep copies of these updated designations with your estate planning documents for easy reference.
Here are a few action items for your consideration:
- Commit to reviewing your beneficiary designations annually. Add it as a to-do item on your calendar so you are reminded.
- Review your accounts and consolidate them when appropriate. For example, having multiple IRAs means you have many more beneficiary designations to keep track of and update. Consolidate accounts when there aren’t any valid reasons to have multiple accounts.
- Name and address changes matter. If any of your beneficiaries have a name or address change, let the financial institution(s) know of that change. This may not require a new beneficiary form, but it is important to have it on file with your financial institution so a distribution at your passing can be handled efficiently.
Maintaining current beneficiary designations is an essential and significant part of an effective and efficient estate plan. By ensuring that your beneficiary information is current and accurate, you can provide peace of mind for yourself and your loved ones, knowing that your assets will be distributed according to your wishes when the time comes.