Most people realize that it’s important to have a will, which transfers your property to beneficiaries after you die; designates the people who shall settle your estate; provides care for your minor children; and may deal with trusts that were established.
So when it comes to estate planning, you think with your will in hand that you’re home free now, right? Think again. Life events such as an illness, marriage, divorce and bankruptcy may happen. Because things change, so must your will and other related estate planning matters.
This includes designating beneficiaries for your life insurance policies and retirement plans including Traditional and Roth IRAs, 401(k) and 403(b) plans.
Update beneficiaries on life insurance, retirement accounts
Many people don’t realize this, but the recipients of your life insurance policy and retirement accounts are based on the beneficiary of the policy’s account, and not your will. Beneficiary designations on these accounts override any instructions that you may have included in your will.
This is why it is so important to update your list of beneficiaries whenever a life event occurs. You want to make sure that your beneficiary designations are in agreement with your most recent decisions. Your will has no say in this matter.
A good plan would include reviewing your designated beneficiaries each year for every one of your accounts. Life events such a marriage, divorce or birth of a child would necessitate this.
Do you really want your ex-spouse to receive some of your retirement funds, especially since you have remarried? What if you initially only named your oldest child – who at the time was your only child – among the beneficiaries of your life insurance policy? That will mean any additional children you had will be left out of your estate.
And when you name beneficiaries on such accounts (as well as your will), a good idea is to include percentages of assets rather than dollar amounts. It may go smoother. It’s critical to stay up-to-date when it comes to estate planning, and don’t neglect to update your beneficiaries on life insurance policies and retirement accounts.