While creating their estate plan, many people fail to update their beneficiary designations on financial products, including bank accounts, 401(k)s, and life insurance policies. Brian Madgett, a vice president at New York Life who heads the advanced planning group, states that for the majority of people, the beneficiary designation comprises their estate plan. Several Americans have most of their assets contained in such products, and the beneficiary designations on a 401(k) or IRA are controlling over any bequests you may have made in a will.
If you fail to update your beneficiary designations, there could be some unfavorable and unintended consequences. If you have been working at a company for 20 to 25 years, you may have the same beneficiary that you designated on your first day of work. However, your life could be very different from the way it was 20 years ago. You could have married, had children, divorced and remarried. Failure to update your beneficiary designations could result in accidental disinheritance of your spouse and stepchildren in favor of an ex-spouse.
In order to prevent such an occurrence, it is recommended that you check your beneficiary designations on a regular basis, and name a contingent beneficiary on all accounts. In this way, you can make certain that your accounts pass to the beneficiaries whom you currently wish to inherit your assets. There are several accounts in which you can name beneficiaries using an online form. Among the events when you may wish to update your beneficiaries are:
• You get married or divorced
• You have a child or grandchild
• The previous beneficiary died
• A minor beneficiary attains legal age to inherit
Some of the financial products in which you may have the ability to name a beneficiary are:
• Retirement accounts, such as 401(k) or IRA
• Certificates of deposit, checking accounts or other bank accounts
• Stocks, bonds or mutual funds
• Pension plans
By updating your beneficiary designations, you can ensure a smooth transfer of your assets to your intended heirs.