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Are Your Beneficiaries Up to Date?

Couple needs to rethink their beneficiaries now that they have grandchildren

5 Tips to Help Ensure Your Beneficiaries Reflect Your Wishes

As you begin growing your wealth, it’s important to consider what will happen to your assets should you die unexpectedly. Beneficiary designations are one way to ensure your assets are passed along according to your wishes.

The challenge with beneficiary designations is that you typically make them when you first establish a new account, such as a 401(k) or IRA. Once that account is up and running, it’s easy to forget about these designations. Many people don’t realize that beneficiary designations take precedence over wills. That means even if your will was updated recently and your account beneficiaries are decades old, assets in beneficiary-designated accounts will be distributed to the named beneficiary, even if that beneficiary is an ex-spouse or estranged family member.

Financial institutions seldom send reminders to review and update your beneficiary designations throughout the years, and there’s no central source that holds all your beneficiary designations. That puts the responsibility for updating your beneficiaries as your life and financial situation evolve squarely on your shoulders. The following tips can help.

#1 – Understand what accounts use beneficiary designations.

Beneficiary designations typically apply to the following account types.

  • Retirement accounts – 401ks, solo 401ks, 403bs, 457s and other profit-sharing plans, traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs
  • Life insurance policies and annuities – Term life, whole life, universal life, fixed annuities, variable annuities and other insurance products
  • Other employer-sponsored plans – Stock options, restricted stock, deferred compensation and defined benefit plans (where applicable)

Tip: Although bank and investment accounts don’t require beneficiary designations, you can always add them to help expedite the account transfer process.

#2 – Establish a net worth statement.

A net worth statement, or balance sheet, provides a snapshot of your financial position at a given point in time. It shows the dollar value of your assets and liabilities, which can be used to give you an idea of your overall net worth.

This information alone is helpful, but a net worth statement is also helpful in keeping your beneficiaries up to date. It provides a comprehensive list of all assets and accounts, which makes it easy to identify where your assets are held. Set reminders to use this list as a guide to check in on your beneficiary designations for each account. Your wealth manager can help you update any missing our outdated beneficiaries.

#3 – Keep a cheat sheet.

Now that you have a net worth statement in place, it should be a simple process to review your beneficiaries for each account. Keep a list of all account beneficiaries in a secure location where your loved ones will know to access it should something happen to you. This can help your beneficiaries more easily access your accounts.

#4 – Provide complete and accurate beneficiary information.

It’s important to clearly name both primary and contingent beneficiaries along with their necessary contact information, including phone number, email address, mailing address, and Social Security number. Review this information on a regular basis to ensure it remains accurate as your beneficiaries’ lives evolve over time.

Remember that the person reviewing your beneficiary designations is someone who hasn’t met your beneficiaries and isn’t familiar with their backgrounds or locations. Keep this information updated to make it as easy as possible to locate your intended heirs.

Tip: Do you send and/or receive holiday cards each year? As you update your annual holiday mailing list, take time to also make any necessary changes your beneficiaries’ contact information.

 #5 – Be wary of naming special-needs dependents as beneficiaries.

If your estate planning goals include supporting a special-needs loved one, it may seem like a good idea to name that person as a beneficiary on your accounts. Unfortunately, doing so may cause more harm than good if the inherited assets disqualify them from receiving government assistance.

Before designating a special-needs individual, consult with your wealth manager. It may make more sense to establish a special-needs trust and name the trust as a beneficiary. This can help you fulfill your goal of supporting your family member without disqualifying them from government assistance.

Could you use some help ensuring your beneficiaries are in line with your overall financial goals and estate planning objectives? Creative Planning is here for you. Our experienced professionals work to ensure every aspect of your financial life is well cared for and helping you achieve your long-term goals. Schedule a call to learn more.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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