A Beneficiary Designation is an agreement that you enter into with a company that is holding financial assets for you. Beneficiary Designations are very common for Retirement Accounts, Life Insurance, Annuities, Investment Accounts, and Pensions. A Beneficiary Designation is used by the company to pay whomever you name as Beneficiary your assets in the company’s possession when you die. It is also important to check your beneficiaries if your accounts transfer to a new financial company because sometimes those designations are not transferred with the accounts and the new financial company wants you to fill out their forms to designate a beneficiary.
This Beneficiary Designation, between you and the company, is not affected by your Last Will & Testament and may stay in effect even if you are divorced or separated. Since these Beneficiary Designations can be separate from your Will and other legal matters, it is extremely important to review who you have named as your Beneficiary of your accounts every couple of years or anytime you have a major life change like a divorce, birth of a child, or even the death of a family member or friend.
It is important to consider that you should not just rely on state law to adjust your Beneficiary Designations for you in the event of death or divorce, and you should carefully consider who you would like these funds to be distributed to after you die. This can be extremely important if you move to a different state and the laws are different.
If you forget to update those Beneficiary Designations your retirement accounts may pass to your ex-spouse or other people that you no longer wish to have the funds rather than your new spouse or children. Your Beneficiary Designation may even pass your account to only one child, if you die before adding a second or third child to the Designation. You also should look at the default language of the account, because sometimes the company will have their own rules about who they will pay the account to if you do not name someone or if the person you name as beneficiary has passed away before you.
If you find that your Beneficiary Designation no longer is accurate, you would update that Designation by filling out a Change of Beneficiary Form. Those forms should be available from the company holding your accounts, many times they can also be found on-line. If you are working with Human Resources or a Financial Advisor they can assist you in obtaining those forms. It is important to note that just filling out and signing the forms is NOT ENOUGH, these forms must go back to the company and be processed for them to be in effect.
One way to update your Beneficiary Designation is to name your Revocable Trust the beneficiary of those accounts. By naming your Revocable Trust as the Beneficiary of your Life Insurance or Retirement accounts, you can update, change, and modify those Beneficiary Designations by making an amendment to your existing Trust. If the Trust serves as the Beneficiary, then, after you die, those funds will pay to the Trust and your Trust will control who gets those funds and when.
For example, suppose you are re-married and have children from a prior marriage. If you name your Revocable Trust as the Beneficiary of the Accounts, you can control those accounts through the Trust. If you want your new spouse to get 50% of the retirement accounts, and the rest to be divided equally between your children, but not until they turn 30 years old, your Trust language can ensure that occurs. If you change your mind later and decide that you want your new spouse and each of your children to receive an equal share of the retirement accounts, you can amend your Trust and it will affect all of the accounts that have the Trust as the Beneficiary. Please see the Blog entitled “What is a Revocable Trust” for the benefits of, and for more information about, a Revocable Trust.
Speaking with an Estate Planning Attorney or Financial Advisor will assist you in discussing your options for Beneficiary Designations. An Estate Planning Attorney can also assist you in evaluating all of your Estate Planning options and needs. For more information or to schedule an appointment to discuss your situation and options, contact us.