Simply said, your beneficiary designations are important. It’s just as important to keep your list up to date. Consider making it a priority or things might not go as you planned.
It’s not uncommon to lose track of your beneficiaries, including which accounts have them, and who you designated. However, it is important to keep them current.
When you designate a beneficiary for an account, that person inherits the assets in the account, regardless of what your will says. That’s why updating your will periodically may not be enough.
Typically, you’ll have beneficiaries for each of your IRAs, your 401(k) or other retirement plans, annuities and insurance policies. Your designations could be out of date just because of life’s changes. Since you made your initial choices, you may have married, had children or divorced. Some of the beneficiaries you chose could have died, divorced or married. Their circumstances could have changed so you no longer want them to be the beneficiary.
Tax laws change frequently as well, and they can have an impact on your choices. Choosing the wrong beneficiary, or failing to name a contingent beneficiary, can affect the long-term value of your IRA assets after you die. That’s why it’s important to review your choices with tax consequences in mind.
At a minimum, you should have copies of your beneficiary designations in one place. If you don’t, call the trustees of your retirement accounts and your insurance agent and request copies.
Then review the documents and decide what changes you’d like to make. Make an appointment to review your decisions with your tax- and estate-planning advisor. Discuss matters such as naming secondary beneficiaries and whether to name your estate as a beneficiary (which is sometimes not a good idea).
Finally, send your changes to the account trustee, ask for a confirmation, and keep copies in your records.
If you have questions about tax consequences or other tax matters related to your estate, call our office.