Designating Beneficiaries and your Will:

Don’t leave it all to just one of your kids

When people think about their estate plan, they mainly focus on what goes in their will.  Frequently, in planning meetings, we spend a great deal of time focusing on who the beneficiaries are, who gets how much and who is in charge of doing that.  Life insurance, retirement plans and savings vehicles are all discussed and planned for.

But while we discuss it, many then forget about the importance of updating the beneficiary information on those financial products.

 Many Americans have the majority of their assets tied up in financial products that have the ability to designate beneficiaries.   That can be a problem, because beneficiary designations on a 401(k) or IRA are legally binding and often take precedent over the wishes you’ve put in your will.

And that can result in some unpleasant situations if your beneficiary information isn’t updated.

It’s not uncommon to see someone who has been at a company for 15 or 20 years have a beneficiary that they set up on their first day of work.  You might have divorced and remarried, or you might have kids or grandkids that weren’t around then.  You may have left everything to the only child you had at the time and then failed to update that designation when you had another child.

Accidentally leaving your estate to an ex-spouse or disinheriting children is all too common for those who haven’t updated beneficiaries. More common is the person who drafts a Will, leaving everything to their children equally, but who forgets to update beneficiary information, and leaves one child their entire retirement plan, which is unfortunately their major (or only) asset.

Designating Beneficiaries on an account trumps any designation in a Will, so it has to be right.

In the above example, the one child inherits the retirement plan absolutely, and then they equally share whatever is left (if anything).

Even if family circumstances are amicable, once that money passes to someone, they can’t just give it to their siblings. The IRS allows gifts of under $14,000 tax-free each year, but anything over that amount will be subject to taxation.

The bottom line is to think about your accounts and how you would like them to be passed on, rather than leaving inheritance up to chance. That means checking beneficiary information regularly, and ensuring there is a contingent beneficiary on all accounts to ensure you’re prepared.  It means making sure that beneficiary designations do not interfere with the will provisions. It means making sure that you evaluate your will and beneficiary designations, and that taken together, they accomplish your goals.

Many accounts allow you to change beneficiaries with a simple online form, so you can ensure they are always up to date.

Events when you may want to update beneficiary Info:

Marriage or divorce, Birth of a child or grandchild, Death of a previous beneficiary, When a minor beneficiary comes of legal age to inherit

Financial products where you may be able to designate a beneficiary:

Retirement accounts like a 401(k) or IRA, 529 college saving plans, Life insurance, Annuities with a death benefit, Corporate profit-sharing plans, Pension plans, CDs, checking accounts or other bank accounts, and Some stocks, bonds or mutual funds.

At the end of the day, whether you leave your estate through a beneficiary designation or as designated in a will, the most important part is to make sure that they are planned for holistically, and not adverse to each other.