It’s 2016. Do You Know Who Your Beneficiaries Are?

When most people put together their estate plan, they want it to be a complete and comprehensive plan to handle their affairs after they are gone. But there is one critical part of an estate plan that gets overlooked more often than any other, and that is beneficiary designations.

Beneficiary designations control many of the most important assets that most people have, including life insurance, retirement accounts (IRAs, 401(k)s, etc.), and in some cases bank or brokerage accounts. The designation on these accounts takes precedence over your Will or Trust in determining who inherits the assets.

The problem, of course, is that these designations are easy to “set and forget.” And if your life situations change (due to marriage, divorce, new children or grandchildren) your beneficiary designations can easily be out of sync with your current needs. People frequently have ex-spouses named as beneficiaries on life insurance, or children who are left out of their retirement plans.

Sometimes, these designations are even prepared with little thought in the first place. When you’re focused on opening that new retirement account, are you really paying attention to the beneficiary designation? When you fill out that stack of papers for your new job, do you even remember naming a beneficiary for your employer’s life insurance programs? Perhaps you filled something in, planning to revisit it in the future, but life got in the way.

Perhaps you don’t even remember designating a beneficiary at all. Who gets these sorts of assets if there is no beneficiary designated? There is no single answer to this; it depends on each company’s contract with you. Some companies have specific default beneficiaries (spouse, children, etc.), while others will default to your “estate”—which means the asset will have to go through probate! Even worse, for tax-deferred retirement accounts, going through your estate will usually result in accelerating the income tax to your heirs.

Don’t let this happen to you. Reviewing your beneficiary designations is an important part of reviewing your overall estate plan, and should be done regularly (I recommend once a year), and also when you have any major life events.  And of course it’s a good idea to review these choices with your estate planning attorney, who may be able to suggest ways to get the most benefit for your beneficiaries.