Many people are aware of the important reasons to develop a comprehensive estate plan. However, not everyone realizes the plan cannot be ignored after its creation. One estate-planning issue that requires your ongoing attention is beneficiary designations. The steps to ensure your designations are in order and prevent future complications are simple and easy to follow. 

Complete the Paperwork

Incomplete or outdated forms can cause major problems later. Double check whether you have completed required forms to designate beneficiaries for the following:

  • Bank accounts,
  • Brokerage firm accounts,
  • Tax-favored retirement accounts,
  • Company benefit plans,
  • Life insurance policies,
  • Annuities, and
  • Section 529 college savings accounts.

If the forms have not been submitted, complete them now. If the forms you turned in earlier are now out of date — for example, if you have had a child, gotten married or filed for divorce — change them to reflect your current situation before it is too late. 

Think Beyond Divorce

Divorce is the most obvious situation in which failing to submit or update beneficiary designation forms can cause big problems. But it can wreak havoc in other situations, too.

For example, the same basic issue exists if you become estranged from an adult child. Or you might now want to leave more life insurance benefits to an adult child who just had twins and less to your childless offspring. When circumstances in your life change, you may need to refresh your beneficiary designations.

There is another key reason to designate beneficiaries: It helps avoid probate. Funds go directly to the beneficiaries you have named. But if you are depending on your will to direct money to the intended parties, all you have done is set up your estate to go through the time-consuming and expensive process of court-supervised probate. No money will be distributed to the intended recipients until the probate process says so.

Also consider naming contingent beneficiaries. These are individuals who stand in line behind your primary beneficiaries. A contingent beneficiary can collect if a primary beneficiary dies before you do. The most common contingent beneficiaries are grandchildren who would inherit if their parents die before you.

Important: Do not rely on a will or living trust to override outdated beneficiary designations. As a general rule, whoever is named on the most-recent beneficiary form will get the money automatically if you die — regardless of what other documents might say. In some cases, keeping beneficiary designations up to date can eliminate the need for a will.

How to Update Beneficiaries

Updating beneficiaries may seem like a daunting task. But the hardest part is just convincing yourself it is time to start.

For example, with a bank and brokerage firm account, you just need to fill out and submit a transfer on death (TOD) or payable on death (POD) form to name or change beneficiaries. Likewise, tax-favored retirement accounts, company benefit plans, life insurance policies, annuities, and Sec. 529 accounts require you to fill out and submit beneficiary designation forms to name or change beneficiaries.

Special Considerations If You Are Married

In the nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — your spouse’s consent may be required to make beneficiary changes to investment accounts and similar items, because most assets accumulated during the marriage are considered to be owned 50/50 by the spouses.

If you are married and have set up assets with you and your spouse named as joint tenants with right of survivorship, your spouse will automatically take over sole ownership if you die. This is a common ownership arrangement for real property and has the advantage of avoiding probate. So, you may want to consider retitling some assets to be held as joint tenants with right of survivorship.

Develop Your Action Plan

It is generally a good idea to check your beneficiary designations at least once a year or whenever significant life events occur. Conducting a checkup and making any needed changes usually only takes a few minutes. You can often access the necessary forms online. For assistance with updating beneficiaries and other estate-planning needs, contact our estate planning team.


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© Copyright 2022 Thomson Reuters. 

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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.




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