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COMMON ESTATE PLANNING MISTAKES: Incorrect (or no) Beneficiaries on Retirement Accounts and Life Insurance Policies

Many people update their estate planning documents every three to five years, yet overlook some of the most important documents — the beneficiary designation forms for their IRAs, 401(k)s, other retirement accounts and life insurance policies. Unlike most assets, where beneficiaries are determined by your will or trust, retirement account and life insurance policy beneficiaries are determined and superseded by that specific account’s or policy’s beneficiary designation form. Independent of your intentions, insurance companies and custodians of retirement accounts must follow certain rules based on your beneficiary forms or the retirement plan’s plan document. If you do not specify your beneficiaries, these assets will most likely have to go through the probate court process.  

Diligently Designate Beneficiaries Upon establishing or transferring a retirement account or establishing a life insurance policy, diligently designate your primary and contingent beneficiaries. Primary beneficiaries are the first in line to receive your retirement account assets or life insurance policy proceeds when you pass away. If there are no living primary beneficiaries, the contingent beneficiaries are next in line. If a beneficiary is elected with “per stirpes” and that beneficiary dies before you do, that beneficiary’s share is passed equally to their children. 

Review Your Beneficiary Designations Annually and During Important Changes in Your Life Diligently review your beneficiary designations annually and update them as needed. A short list of changes in your life that may prompt a change in beneficiaries include: the adoption or birth of a child, divorce, the transition of beneficiary from a minor to one of majority, marriage, inheritance, death and/or change in your financial situation.  Also, keep in mind that a beneficiary who is receiving state assistance, such as Medicaid, should not be named as a direct beneficiary for risk of losing such benefits.

Set up an appointment with Longstreet Elder Law & Estate Planning, PC to discuss your beneficiary designation questions and other estate planning needs.