Regardless of what your will specifies, the beneficiaries you list in your various financial accounts will receive those assets. It is extremely important to conduct a beneficiary audit at least once a year, as well as when there are major changes such as a marriage, divorce, birth of a child or grandchild. Here are some guidelines to keep in mind:
Review the designations for all of your accounts, including:
- Life insurance policies
- IRAs, 401(k)s, pensions and other retirement accounts
- Securities accounts (payable on death)
As relationships often change over time, it is not unusual to find that designations made earlier may be quite different from what you prefer now.
Special situations also need to be taken into consideration. If a minor is the current designee, you will need to name a trust as the beneficiary until the minor reaches adulthood or the age you designate.
If a beneficiary has special needs, has difficulty managing money, or has some form of addiction, you may want to designate a trust as beneficiary. The benefit is that a trustee then decides when and how much will be distributed to the beneficiary, providing protection of the assets in the beneficiary’s best interest.
A beneficiary audit can save estate and income taxes, avoid legal intervention, protect against creditors and ex-spouses, and provide for beneficiary well-being.
Source: Wealth Magazine, Summer 2013