~One of the easiest and most impactful financial planning “to do” items that can be checked off your list is reassessing beneficiary designations. When meeting with new financial planning clients, this is one of the first things we review. There have been many occasions that we discover a serious mistake or oversight during this process.
Keep in mind, when we are discussing beneficiary designations, we are generally referring to those accounts or insurance policies in which beneficiaries can be named directly. These primarily include qualified plans (401(k)/403(b) plans, IRAs and life insurance policies.
We suggest that you perform a “beneficiary audit” at least every three years, or when there are changes in your family dynamic (birth, death, marriage, divorce, etc.). Here are a few of the more common mistakes that people make:
• Not naming a beneficiary at all
• Naming an “estate” as beneficiary
• Naming an ex-husband or ex-wife as beneficiary
• Listing a parent as beneficiary after getting married or having children
• Not having a contingent or secondary beneficiary
• Naming a minor (or even a young adult) directly as a beneficiary instead of a trust for their benefit
• Designating a trust that does not exist or is outdated as a beneficiary
Reviewing and updating beneficiary designations is a painless and quick exercise that can make a huge difference in creating the most efficient distribution of your assets to your heirs. Because there are tax, legal and other logistical issues to consider, it is important that you choose your beneficiary designations strategically and in the context of your entire estate plan. We suggest using a qualified attorney to provide valuable insight in this area.