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Those “rainy day” projects have a way of not getting done even on the rainy days, but every once in a while, we eventually get around to taking care of those things we tend to push off. One of these things we recommend doing on a regular basis is reviewing your beneficiary designations.
It’s one of the most overlooked steps in tying your financial accounts into your estate plan. And it’s usually amazingly easy to do.
Why Beneficiaries Matter More Than You Think
If you have an IRA, 401(k), trust, or any type of retirement account, the listed beneficiary(ies) name who will receive those assets if you pass away. And it's enforceable by contract law, which supersedes what you may have written in a will.
That detail trips a lot of people up. Many assume that what’s written in their will governs everything. Beneficiary designations, however, are what actually control the transfer of those accounts.
If there’s a conflict between the beneficiary(ies) listed in your will and those listed on your accounts, the designated beneficiary on your account will be the one to inherit it.
While it’s technically possible to challenge a beneficiary designation in court, it’s neither pretty nor simple, which is why we recommend keeping things up to date, so it never becomes an issue in the first place.
What a Beneficiary Review Means
Doing a review is simple. It’s not about rewriting your estate plan or making huge changes. It’s about making sure the details on your accounts line up with the work you did with your estate planning attorney. (And if you don’t have an estate planning attorney, it’s about making sure that your accounts accurately reflect those you’d want to inherit your money should something happen to you.)
Here’s what should be checked:
- Who is listed as the beneficiary (or beneficiaries) on each retirement account?
- Have there been any changes in your life (family, relationships, intentions) that would affect those choices?
- If you’ve created or updated trust documents, are those updates properly reflected on your bank, investment and retirement accounts, as well as any life insurance policies?
- Are the accounts properly titled to match your estate planning attorney’s work?
- Do you have bank or investment accounts that you’d like to have passed to someone without going through probate?
You’d be surprised how often someone has a trust document fully drafted and signed with a lawyer paid, intentions clear, but never properly funded the trust by opening a trust account. Everything’s in place, but the assets never moved. It’s a detail that can make all the difference. If assets aren’t moved from your name into the name of the trust, then the trust isn’t funded, and all the legal work may be for naught.
Why We Keep Coming Back to This
We don’t write estate plans, draft trusts, or create wills, but we do help clients make sure the financial side lines up with the legal side. That means reviewing account titles, beneficiaries, and making sure the account execution matches the planning.
Life happens. A few years go by, and things look different. That’s normal. That’s also why it’s worth making this review a regular habit. Once every year or two, barring any major life changes (birth, marriage, death, divorce, etc.).
A Simple Step That Saves Future Headaches
If you haven’t looked at your beneficiary designations in a while, this might be a good time to do it. Take advantage of a slower or quieter week (or that rainy day!) and give yourself the peace of knowing that you’ve got everything lined up just the way you want it.
It's not a big project, and it doesn’t require any major overhauls. But it could be one of the smartest, simplest financial steps you take this year.