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Your Beneficiary Checklist


Designating beneficiaries can be a simple act, but it also requires regular upkeep as life circumstances change. Here's a list of items to consider as you prepare and update your estate plan.

Will and Testament

Many people falsely believe that retirement accounts are part of your estate and will be distributed accordingly in the event of your death. In almost all cases, this is simply not true. Your retirement benefits will be handled according to your beneficiary designation.

It’s quite common for retirement account owners to go through a divorce or a death in the family without updating who should receive the funds should the account owner pass away, which can create a legal and emotional mess. We recently covered some financial concerns to think about if you’re going through a divorce, but that’s just one of the life events that may necessitate a change in your beneficiary information.

Designating a beneficiary can be simple, and it can be complicated. It’s generally simple if your beneficiaries are a person or persons; it can get complicated if you choose an estate as your beneficiary. Either way, to make sure your assets are handled according to your wishes, you should schedule some time with an estate attorney, look over your retirement plan documents, and discuss beneficiaries with your advisor and your family. Here’s a quick list of questions that can get you started:

• Are your beneficiaries up to date? If not, making an adjustment is easy; all you have to do is fill out a change-of-beneficiary form. Just make sure it gets where it’s going; confirm with your retirement provider that they received the change.

• If you designated a trust, an organization, or a charity as your beneficiary, is that organization still a going concern? If you are thinking of listing a trust, don’t go it alone. This is a complicated subject and should include consultation with an expert.

• Have you gone through a divorce, a remarriage, or had more children since your list was last updated?

• Has your primary beneficiary already passed?

• Have you considered the tax consequences of your designation? Unlike some other inherited assets (including cash and property), retirement accounts can trigger an income tax liability to your beneficiaries when they make a withdrawal from the plan. This situation isn’t exactly avoidable, but there are some strategies for distribution that could lessen the immediate tax impact that you can discuss with your estate attorney.

• Consider any delays your beneficiaries my face when withdrawing from your retirement accounts. Rules for distribution are different for spouses than they are for children and grandchildren. For example, if you elected not to pass on an inheritance to a child, instead listing the child as your retirement account beneficiary, just be aware that the child might not have access to those funds immediately. Your retirement plan can provide details about under what circumstances this could be the case.

• Do you have a provision in the event of simultaneous death? This is more common than you might think. A solid beneficiary designation will include successor beneficiaries in the event of extenuating circumstances.

With today’s technology and highly do-it-yourself culture, the temptation might be to handle beneficiary designations yourself. But this is one area you may want to think hard about seeking professional help. Either way, there are many steps you can take to make sure that if anything should happen to you, our loved ones will be taken care of according to your wishes.

This article is for informational purposes only and should not be considered tax advice.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice