Why Should I Check My Retirement Account Beneficiaries?

Investopedia’s recent article, “The Importance of Updating Retirement Account Beneficiaries,” shares some of the problems caused by outdated beneficiary designations.

It’s not uncommon for retirement account owners, who’ve been divorced and remarried, to forget to update their beneficiary designations. It is also troublesome, if some children are named as beneficiaries but the document isn’t updated to include those who were born after the initial designation. To avoid these issues, update your beneficiary designations right after you have a change in family status and review them periodically, so they never become outdated or incorrect.

You can also write in a customized beneficiary designation to address “what-if” situations, like what if your primary beneficiary predeceases you and you fail to update the designation?

An IRA plan’s documents also default the designation, if the designated beneficiary predeceases the IRA owner. These options vary among IRA custodians and trustees. This option may reduce the administrative responsibilities from account owners, but it may not reflect their preferences. That’s why account owners should check the plan document and be sure that they update their beneficiary designations regularly.

Spouses, expecting that one will predecease the other, frequently designate each other as their beneficiaries. However, the issue of simultaneous death is then addressed by state law. This will decide that one spouse died first, even though both deaths occurred at the same time.

This determination is important, if there are children from a previous marriage because it may determine if all the children must be included or children from a previous marriage will be excluded. For this reason, the proper documentation naming successor beneficiaries for normal and extenuating circumstances is needed.

You can also create a customized designation to choose how that portion would be distributed, instead of having it default to the surviving beneficiary. For instance, if one of your beneficiaries has children, you can designate them to receive the primary beneficiary’s share, if he or she passes before you do.

When drafting your customized beneficiary designations, you can look at various options with your estate planning attorney to find the one that meets your needs. The beneficiary designation you select may determine, if your elections are carried over to the next generation.

Making a proper beneficiary designation is a critical part of your estate planning.

Reference: Investopedia (May 8, 2018) “The Importance of Updating Retirement Account Beneficiaries”