Most of our California readers have dealt with beneficiary designations at one point or another. Beneficiary designations are specifications as to who will receive the proceeds of an account at the death of the account holder. They are used in IRAs, mutual funds, life insurance policies, bank and brokerage accounts and annuities.
Too many people fill out beneficiary designation forms when they open an account, and then fail to keep them updated. This is unfortunate, because beneficiary designations override anything specified in a will. When there is an inconsistency between estate planning documents and beneficiary designations, an otherwise well-structured estate plan can be thrown for a loop. It is therefore imperative to keep them updated.
The biggest piece of advice we can give here is to simply recommend periodically reviewing all your beneficiary designations to ensure they still meet your wishes. When should a review be made? It doesn’t hurt to do a review once a year, or more if desired. At least, one should review after major events like divorce, remarriage, the birth of a child or grandchild, the death or disability of a beneficiary. Other times for review are when your financial institution changes ownership and when you change employers and roll over your retirement plan.
A full review of beneficiary designations should be made from time to time, but often one only needs to review one or another designation when changes affect that specific account or policy. Whenever making a review, it is not a bad idea to also make a quick review of one’s estate plan as well.
Source: Forbes, “The Big Estate-Planning Goof You May Be Making,” Harper Willis, December 16, 2013.