Tis the season for end of the year – and the decade – summaries of significant events. The end of December is a time to reflect on what has transpired over the course of the past year, to take stock of your finances (depleted as they may be after the holidays), and to plan for the year ahead. This makes late December the perfect time to set aside an hour to review the beneficiary designations on your bank accounts, investment accounts, life insurance policy, and retirement accounts to confirm that the beneficiary designations are consistent with your estate plan.
As I wrote in this earlier blog post, investment accounts, bank accounts, retirement accounts, and life insurance policies all provide a way for you to designate the beneficiary of the funds in that account, or proceeds from the policy, when you die. These assets will transfer via beneficiary designation automatically to the designated beneficiaries on the account when you die, rather than to beneficiaries named in a Will via the probate process. Because this transfer occurs automatically, it is important to confirm that your beneficiary designations are current and designate the people who you want to receive the funds in the account after you die. For example, you may have designated your brother as the beneficiary of your retirement account in your first “real” job. Now, 10 years have passed, you’ve moved on to another job at a different company, and you are married. Who do you want to receive the funds in that old account if something happens to you – your brother or your spouse?
If you have a Will or Revocable Living Trust that provides for creation of a trust for the care of your children when you die, you should confirm that your account beneficiary designations properly designate the trust as a beneficiary, if your intent is for the account funds to transfer to the trust. However, because federal tax regulations governing retirement accounts are complex and very specific, always consult with an accountant or attorney regarding any changes to your retirement account beneficiary designations that nominate any trust to discuss any tax consequences. In addition, if charitable giving is part of your estate plan, you may want to discuss tax advantages for charitable giving via retirement account beneficiary designations as well.
Reviewing your account beneficiary designations at the end of December will help you to confirm that, should something happen to you, your assets will be transferred to the appropriate beneficiaries. Resolve to dedicate an hour to this task. While it may not be the most exciting hour of the year, chances are, you’ll feel glad that you did it.
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