If you do one thing by the end of the year, do this. Update the beneficiaries on your financial accounts.
Think about the life changes you may have had during the past 12 months: birth, death, divorce, marriage. The landscape of the people around us is ever-changing and it is always a good idea to keep your beneficiaries to date with the life changes around you.
Many different types of accounts have beneficiary designations, and it’s important to review each annually. Some accounts include 401k, 403b, Taxable (Transfer on Death), IRA, Roth IRA, 529, annuities, bank accounts, and life insurance policies.
Beneficiary management is a crucial part of the estate planning process, and many people fail to check and update their beneficiaries, leading to frustration down the road for those left having to sort through the estate settlement process.
Here’s how beneficiary management can help you.
- It saves time. If you do not have a beneficiary listed, your account may have to go through the probate process, delaying the transfer of assets. This is a lengthy and sometimes costly process.
- It provides clarity. If you’ve named your beneficiary, there won’t be any question at the time of your passing as to who inherits what.
- It could save money. Spouses designated as beneficiaries call roll the deceased spouse’s IRA into their own, saving on RMDs and therefore taxes.
Contingency plan? You can often designate contingent beneficiaries, should your primary beneficiary die before or at the same time as you.
If you have a more complex estate or children under the age of majority, you may want to consider establishing a trust. There are many types of trusts, so consult with your attorney to understand which trust structure best meets your goals and reflects your wishes.
For example, a revocable trust can be named as beneficiary on Taxable accounts, but should not be named on qualified accounts (e.g., your Roth, your IRA, etc.) unless the trust has an additional sub-trust (“see through trust”) designated for retirement assets. Again, know what you are signing.
While you’re at it, this is a great time to update wills, powers of attorney, or any other estate documentation.
If you’re wondering who is set to inherit your assets, contact your financial advisor. Often, these changes can happen in moments with a form or through an online portal. Have questions? We’re always here to help. Drop us a note.