The Crucial Estate Planning Step Everyone Needs To Check Every Year

October 17, 2018

When was the last time you checked to make sure that all of your beneficiary designations were set up properly? It’s a good idea to take a look after any big life change such as marriage, divorce, birth or death in your family. However, even if no one important has entered or left your life recently, it’s a best practice to make sure that everything is correct at least once a year. Open enrollment is as good of time as any, since you’re more likely to be poking around your work benefits site anyway.

Why check if nothing’s changed?

Maybe nothing has changed in terms of who you’d want to inherit your assets that pass via beneficiary designation, but perhaps the actual benefit has changed. For example, the HSA provider my company uses was recently acquired by another vendor. Supposedly the beneficiary designation information was transferred along with my account to the new provider, but I was unable to verify that by logging in to my account, so contacted them to confirm.

Other reasons to consider updating beneficiary designations

Marriage, divorce, birth and death are very definitive reasons to prompt a review, but there are other subtler reasons to make updates as well:

  • Your children are now adults, so you may want to add them as contingent should your primary person (often your spouse) pass first
  • You’ve become closer to certain family members and/or grown apart from others
  • You have only certain children who will inherit a significant asset like your house or business, so you use other accounts to equalize with the rest of your family
  • You want to leave money to a charity — using HSA or traditional retirement accounts is a more tax efficient way to leave money to charity than a bequest in your Will or part of a life insurance policy

What happens if the beneficiary is not set?

One of the benefits of accounts that allow you to assign a beneficiary is that it can help you to avoid probate, which is public and can be costly, while also holding the assets up while the person’s estate is settled. (Here’s a real-life story where that happened)

If you pass away and no beneficiary is named for accounts that have that feature, your estate automatically becomes the beneficiary, which means it will go through probate.

When the beneficiary is set, but it’s the wrong person

Your Will does NOT override beneficiary designations, so for example, if you name your sister as the beneficiary of a life insurance policy, then neglect to change that once you get married, your sister may actually inherit the proceeds, even if you have a more recent Will that says your spouse should receive everything.

Even worse, there are countless cases of people who got divorced, but forgot to change their beneficiary from their ex-spouse. This gives a whole new meaning to the phrase, “over my dead body…”

Use this checklist to make sure ALL accounts are up-to-date

Set some time aside to review any of the below to make sure the beneficiary is who you want it to be, based on your life today.

  • Pension
  • 401(k)
  • IRAs
  • Former retirement accounts
  • Life insurance through work
  • Other life insurance
  • HSA
  • Employee Stock Purchase Plan
  • Annuities
  • Deferred compensation plans
  • 529 and Coverdell Education Savings accounts