Keeping Beneficiary Designations Up to Date

If you have a 401(k) or an IRA (or some other similar type of retirement account), you’ve probably already made an important estate planning decision: selecting your beneficiaries. Beneficiary selection is an important decision, and when you’re setting up a new account, it can be easy to overlook or forget about.

Beneficiary designations are so important because generally these accounts pass outside of probate to whomever the account holder named as a beneficiary. Here are some ways you can make sure you have your beneficiary designations accomplish what you want:

  • Select a beneficiary and a contingent beneficiary. This seems easy, but sometimes account holders fail to name a beneficiary at all. If you don’t have a beneficiary named (or if your primary beneficiary dies first), the account will probably pass to your estate and go through probate. For clients that want to avoid probate, this can be a frustrating result.
  • Review how your beneficiary designations fit into your entire estate plan. Because accounts with a beneficiary pass outside of probate, you’ll want to make sure that your beneficiary designations fit into your overall distribution plan. For instance, if your will passes your estate evenly to three people, but you’ve only named one of those people as the beneficiary of your IRA, that person is going to receive more than the other two. If you have a lawyer preparing your estate plan, you should let your lawyer know about those accounts and how you’ve set the beneficiary designations.
  • Update your beneficiary information. The most common scenario you’ll hear about is where an account holder named his or her spouse as the primary beneficiary, got divorced, and then never changed the beneficiary. In a will, Missouri law can revoke bequests to ex-spouses for you, but that doesn’t apply to your beneficiary designations. I suggest reviewing your beneficiary designations as frequently as you’d review the rest of your estate plan.
  • Keep records of your beneficiary designations. As the Marketwatch article linked above suggests, you should keep your beneficiary designations with your other estate planning documents. This not only keeps your planning documents together when your personal representative needs them, but it serves as a reminder that those accounts exist.

Beneficiary designations are easy to update, but equally easy to neglect. Keeping them up to date is an important part of an effective estate plan.