In the hectic pace of everyday life it’s easy to forget how long the existing will has been stored in the fireproof safe or when the last time the beneficiaries on retirement accounts or life insurance policies were reviewed. One client was amazed to realize that she once provided for her 16 year-old nephew as a beneficiary of her life insurance. Since she last reviewed beneficiaries the nephew had become a successful businessman with a net worth greater than hers.
This story underscores the need to review beneficiary designations periodically as part of your estate planning process. It is also important to review the laws that pertain to beneficiaries in order to maximize the value of the estate left to the heirs.
Retirement Accounts and Life Insurance
Retirement accounts include IRAs, Roth IRAs, and SIMPLE IRAs. Beneficiary designations for retirement accounts are kept on file with the plan administrator, plan trustee or the account custodian and life insurance beneficiaries with the insurance company. While only a single beneficiary is needed, retirement account or life insurance policy owners are allowed to specify multiple beneficiaries, usually indicating what percent of the account proceeds each beneficiary is to receive. An alternative approach is to create a hierarchy of beneficiaries should the first beneficiary die before inheriting the account.
An important point is to maintain accurate records of not only your beneficiary designations but also the address of the plan administrator, insurance company or online resource for managing beneficiaries in order to process any changes in beneficiary designations.
Employer-sponsored Retirement Plans
Most employer-sponsored retirement plans require that the spouse be the primary beneficiary of the plan. The spouse must provide a signed and notarized form that he or she approves the naming of a different beneficiary for the retirement plan. If set up correctly secondary beneficiaries are allowed and become the beneficiary upon the death of the spouse.
It’s important to notify the plan administrator of beneficiary changes when marital status changes through divorce or remarriage. Various laws govern the distribution of employer-sponsored retirement plans when there are multiple marriages involved.
Non-retirement Accounts
Ordinary savings accounts or any form of brokerage account do not provide for the naming of beneficiaries. However, the account can be left to a beneficiary outside of a will and probate by setting up a “Payable-on-Death” (POD) registration for the account.
Estate planning is an ongoing process and includes reviewing not only a will but all beneficiary designations on a regular basis.
Larry Parman
Attorney at Law
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