Safeguard Your Legacy: The Importance of Updating Beneficiary Designations
Beneficiary Designations: Ensuring Your Assets Reach the Right People After You're Gone
While wills and trusts are essential estate planning tools, beneficiary designations play a critical role in ensuring your assets reach your intended beneficiaries after you pass away. These designations apply to assets like retirement accounts, life insurance policies, and even certain bank and brokerage accounts, which typically bypass probate. Regular review and updates are vital to avoid unintended consequences and ensure your wishes are carried out.
The Risks of Outdated Beneficiary Designations
Many people designate beneficiaries when they open these accounts and then forget to revisit them. Life changes like marriage, divorce, births, and deaths can render your designations outdated. This can lead to serious issues:
- Assets going to unintended beneficiaries: An overlooked designation from a previous relationship could result in assets unintentionally going to an ex-spouse.
- Assets ending up in your estate: If you don’t name a contingent beneficiary and your primary beneficiary predeceases you, the asset becomes part of your general estate, potentially causing delays and distribution issues.
- Loss of asset protection: Retirement accounts offer creditor protection, but this benefit is lost if the assets are distributed through your estate.
- Complications with minor beneficiaries: If your primary beneficiary dies before you and you named a minor child as the contingent beneficiary, legal issues can arise when managing the assets until the child reaches adulthood.
Beyond Unexpected Outcomes: Tax and Government Benefits Considerations
Designating a loved one who relies on government benefits, like a disabled child, as a primary beneficiary of certain assets can jeopardize their eligibility for those benefits. A special needs trust might be a better option in such situations.
Furthermore, changes in tax laws can significantly impact your estate plan. For instance, the SECURE Act modified how inherited retirement accounts are distributed. Previously, beneficiaries could stretch out distributions over their lifetime, maximizing tax advantages. Now, most non-spousal beneficiaries must deplete inherited IRAs within ten years. Reviewing beneficiary designations for retirement accounts in light of the SECURE Act may be necessary. You might consider naming different beneficiaries, using a charitable remainder trust, or exploring other options to optimize your estate plan.
The Takeaway: Regular Review and Professional Guidance
Beneficiary designations are not a one-time event. Regular review and updates are essential to ensure your wishes are followed. An estate planning professional can advise you on how these assets integrate with your overall estate plan and help you make informed decisions to safeguard your legacy. Schedule a consultation with an estate planning professional today to discuss your specific situation and create a plan that reflects your current wishes.
Questions?
Estate, Trust, and Succession Planning Services
Mark’s background in tax enables him to provide extensive services to the firm’s clients in the areas of estate and retirement planning, and business succession consulting.