Beneficiary Designation Checkup Time

A periodic review of the beneficiaries you have designated on your assets and financial accounts is a necessary estate plan health checkup.

No one that I know loves to review their beneficiary designations, but if you are looking for something to do in the silent, heavy heat of the dog days of summer, you could get this one out of the way.

Step One – Understand What a Beneficiary Designation Is and Does
You can name a person or persons, a trust, a charity or other entity (all of which are considered beneficiaries) to receive your property on your death. You can name beneficiaries in your will, in your trust, on your car or other large vehicle, for your house and land, for your company retirement plans and for your IRAs.

Asset by asset and account by account, the beneficiary on that asset or account supersedes any other beneficiary designation you make elsewhere. For example, lets say that you have a transfer on death to your eldest child defined on your house. In the trust you have set up, your beneficiaries are to your children equally and then (if your children die before you) to their children. Who gets your house when you die? Your eldest child gets it all.  The transfer on death designation on the house supersedes the beneficiaries of your trust.

Setting up the optimal beneficiary on an IRA or other retirement account can greatly affect the final amount of money available to future generations. In general, younger beneficiaries can leave the money in a tax free or tax deferred status longer due to the longer the greater length of time they have before they begin to withdraw the money (other considerations apply here as well however).

Step Two – List Out All Your Accounts and Assets
Make a list of any account or asset you have that could possibly have a designated beneficiary. Think about any bank accounts; businesses; checking accounts; brokerage accounts; life insurance policies – including those at work; annuities; cars; boats; and real estate, such as your house, any rental properties, second homes, or vacation condos you own.

Also think about real assets that wouldn’t have a specific beneficiary – such as your original WWII Military and decide if any of those can’t be lumped together into one beneficiary or group of beneficiaries in your will or trust.

Step Three – Find Your Designations
If you have a will or a trust, review the most recent documents to see who you designated.

You may need to find your original account setup documents or contact your financial institutions to see who they have recorded as beneficiary on assets they hold – if you haven’t kept a record yourself.

Step Four – Determine If Your Designations Are Still Appropriate
Life changes and so should your beneficiary designations – when needed. You should actually review designations as soon as possible after any major life change.

Have you recently divorced? You may not want your ex and his new girl getting the house any more. Has your spouse died? You need to make sure that the designations in place will carry forward the way you want them to. Have you had another child? Make sure that child will be included.

Has a child developed a special need for which you want to provide? Have your heirs ticked you off so badly that you want to give your fortune to someone else? Have you recently set up a trust and need to include it on specific assets?

If you find that changes are needed, move on to step five.

Step Five – Name or Replace Beneficiaries
If you find assets or accounts without beneficiaries, remember that those will go to whoever you designated in your will, trust or other estate planning documents that apply. If that is appropriate, your are good to move on to the next step.

You may want to check in with an accountant or estate plan lawyer to make sure that your designations match the goals you are trying to achieve.

To change the designations, contact the institution (or government agency) involved to get the procedures and paperwork needed to make the desired changes. Complete the required paperwork or website information and confirm that the institution actually made the change. If you require a designation that is out of the norm for that institution, you may need to bring your estate planning lawyer into the conversation to get the institution to set it up the way you need it.

Most institutions typically allow you to set up both primary and secondary beneficiaries. Very few have forms that provide for much deviation from that. Usually you can name multiple primary (these get first chance at the money when you die) – with percentages that go to each and multiple secondary (these receive the money if the primary is deceased or has renounced the inheritance) – also with percentages that go to each.

Most institutions do not send out periodic notifications about who your beneficiaries are, and sometimes their systems get messed up. Ask for written verification of your designated beneficiaries.

Step Six – Record Who the Beneficiaries Now Are
Keep that account and asset list for your next periodic review – and add the beneficiaries as adjusted or retained. Next time you do this unpleasant job, it will be much easier.

When was the last time you reviewed your beneficiary designations?