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It’s Time for Your Annual Beneficiary Checkup

It is common for individuals to designate beneficiaries and then go years without reviewing or updating their choices.  However, a change  in health or family dynamic, the death of a primary beneficiary, marriage, divorce, or a change in philanthropic preferences can quickly render your beneficiary designation obsolete.  Regularly reviewing your beneficiary designations ensures that at the appropriate time, your assets will be distributed in the way that you desire; therefore it is essential that beneficiary designations be regularly reviewed and coordinated with your current overall estate plan and family situation.   Here are a few factors that may affect your beneficiary choices:

Different Accounts, Different Beneficiaries
Many people have various types of accounts that require beneficiary designations. In this case, you may want to designate different beneficiaries for each type of account that you own. Naming the appropriate beneficiary on retirement accounts, non-qualified annuities or life insurance policies can maximize the transfer of assets to your heirs. For example, designating children as beneficiaries on your qualified accounts provides tax advantages to your heirs through the use of Inherited IRAs.

Creation of a Trust
The creation of a trust does not overrule who you have designated as account beneficiaries. For example, if your trust says that your estate should be distributed one way and the beneficiary designations on all your accounts distributes it another way, the assets will be distributed according to the beneficiaries designated on your accounts, not the ones listed in the trust. In order for your assets to be distributed based upon the directives of the trust, you may need to change the registration of your taxable accounts to the trust and/or list the trust as the beneficiary of your qualified retirement accounts.  (Note if you name a trust as a beneficiary of a qualified retirement account then you must make sure it is a “Qualified Trust” to ensure its ability to roll into an Inherited IRA. You should consult your attorney when naming a trust as a beneficiary.)

Death of a Primary Beneficiary
If your primary beneficiary predeceases you, it is essential to make sure the contingent beneficiaries are correctly listed and reflect your wishes. For instance, you may not want to transfer a large sum of money to a minor or someone that has difficulty handling money.

Marriage, Divorce, and Changes in Family Dynamic
Prior to marriage, you may have designated your parents, siblings or someone other than your spouse as the beneficiary on pre-existing accounts.   Think about all the employers from whom you have received a pension or retirement benefit (401k, 403B, 457 or deferred compensation plan, profit sharing plan, just to name a few.) You will need to update these plans to reflect your new situation.
If you are divorced or are going through a divorce, make sure that all the beneficiary designations are changed to reflect the divorce decree.   Do not assume that these are changed automatically, you must verify that they have been changed. It is not unusual for an ex-spouse to collect life insurance proceeds or a rollover IRA from a deceased account holder, which can create difficulties for the current spouse or surviving children.
Additionally, if your family dynamics have changed due to a change in your health or a child’s health, you may need to rethink your previous designations due to the financial health of your family.

How to Keep Track of Your Beneficiary Designations
Write down or create a spreadsheet of every retirement account, non-qualified annuity and life insurance policy that you have.  Make a list of your primary beneficiaries and contingent beneficiaries.   Keep a record of the list and share that list with your financial advisor, accountant and attorney.  Periodically check this list to keep it in line with your estate plan. Keeping these current could have a dramatic impact on the lives of those you love.

If you have any questions or need clarification on any of these issues, please don’t hesitate to contact your Hysjulien and Associates professional to review your individual situation.

December 4th, 2014

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