Review your beneficiaries, now and every year

Who are the beneficiaries of your retirement accounts, life insurance and disability policies, and annuities? Have you reviewed these policies lately to update or change beneficiaries, if needed?

It’s a process that should take place annually, ideally as part of an annual review of your finances, experts say. In the case of a major life event – such as a marriage, divorce, birth of a child or death of a loved one – changes should be made as soon as possible. You may also need to change or re-designate your beneficiaries if your employer changes insurance or retirement plan providers, according to MSNMoney.com.

Why is this so important? Say you forgot to change your life insurance beneficiary when you were divorced 20 years ago, and the money goes to your ex-spouse rather than your spouse and children. Even if the first spouse disclaimed the money, your estate would then be tied up in the costly and lengthy probate process.

Keep in mind that designating beneficiaries is not quite as simple as writing your loved ones’ names on a dotted line. Here are some considerations to keep in mind:

Don’t leave it up to someone else. Advisers say you shouldn’t designate a trusted friend or relative as a beneficiary and assume that they will know how to distribute your assets.

Your will doesn’t do all the work. A person must be named as the beneficiary to receive assets, even if they are designated in your will to receive the assets.

Inheriting assets has tax consequences. Most people name a person, specifically their husband or wife, as the primary beneficiary of their assets. Currently, a spouse can leave his or her estate to the other without incurring estate taxes. However, if someone other than your spouse is named as a beneficiary, the assets will be included in the value of the estate and could be taxed. Also, remember that the assets left to a spouse become part of his or her estate, and should the estate grow in size over time, the heirs may end up owing taxes. An alternative is to set up a trust to receive your assets. This costs money but is particularly advisable if you’re a single parent with minor children or have a special-needs family member.

Name one or more contingent beneficiaries. These individuals receive the assets if the primary beneficiary should die before or at the same time as the policy holder.

Minor children should not be named as beneficiaries. A court will name a guardian, either a person or financial institution, to control the assets until the children are 18. Instead, set up a trust or designate a guardian yourself, advises Bankrate.com. You must also have a plan if you don’t want your children to gain control of the assets at age 18.

If you haven’t given your beneficiaries a second thought, it’s not too late. Make an appointment with your banker, adviser or insurance agent for a “beneficiary audit” as part of a complete financial review.

Copyright 2008 BadgerBoomers.com

Print PDF