When should I update my beneficiary designations?
A well-designed estate plan is one that considers the changes that occur during an individual’s lifetime, such as getting married, having children, or getting divorced. In addition to keeping your estate planning documents, such as a trust, a will, and powers of attorney, up-to-date, it is also essential that the beneficiary designations on your retirement accounts are current.
Reasons to Update Beneficiary Designations
Because retirement accounts and life insurance policies are generally not included in an estate, it is important to update these documents so they match your overall estate plan, ensuring that your last wishes are fulfilled. Of course, if you do not specify these designations, federal or state law will make their own determinations.
By failing to update these designations in the event of divorce or remarriage, there is the potential that your heirs will become entangled in a lengthy and expensive litigation, and the court’s determination may not agree with your wishes. Similarly, if you have children after you have previously established beneficiaries, it is crucial that your designations be updated. Moreover, it is essential to designate successor beneficiaries in the event that your primary beneficiary passes before you do or if you both die simultaneously.
Types of Beneficiary Designations
Generally there are two types of beneficiary designations: per stirpes and per capita. A per stirpes designation provides that the share your primary beneficiary would have received goes to his or her heirs in the event he or she predeceases you. In a per capita designation, in the event the primary beneficiary predeceases you, the assets are allocated equally among the successor heirs.
401(k)s and Other Qualified Investment Plans
If you are married, federal law designates your spouse as the beneficiary on a 401(k) or other similar retirement account. If you are single, however, your estate may be the default beneficiary. Finally, if you wish to designate someone other than your spouse as the beneficiary on a qualified retirement plan, he or she must sign a written document approving the designation, and the document must be notarized.
Trust Beneficiaries
One way to ensure that your retirement assets are distributed according to your wishes is to designate a trust as your beneficiary. By selecting the right type of trust, you can provide financial support to your surviving spouse and ensure that any children from a previous marriage are also provided for.
In the end estate planning, beneficiary designations of retirement investments and establishing trusts can become complicated as the circumstances of your life change. In order to ensure your estate planning documents are up to date, and that your beneficiary designations match your estate plan, you should engage the services of an experienced estate planning attorney.