With how busy we all are, it’s so easy to forget those regular dates for maintenance projects. Whether changing your car’s oil or air filter or swapping out your smoke detector batteries twice a year, if you don’t have a system for remembering to do these things, they can easily slip your mind.
Here’s another one that you definitely don’t want to forget: updating your beneficiary designations. Chances are, yours might be way out of date. After all, there are so many different ones to stay on top of your IRA, 401(k) accounts, pension plans, checking and savings accounts, life insurance, annuities, mutual funds, deferred compensation funds, deeds, trusts, Section 529 plans, the list goes on!
If you think, “I updated my will last year, so I’m all set”–think again. Consider that beneficiary designation generally override a will’s provisions if they aren’t coordinated. One reason for this is because beneficiary designations avoid probate, which allows for a faster and more private payment. But still, it means who your beneficiaries are is crucial.
When should you regularly update them? Annually for all of your accounts, plus whenever you have a major change in your life like marriage, divorce, adoption, the death of a spouse, or the birth of a child. For instance, a lot of single people starting out often name their parents as their beneficiaries and forget to update that after getting married.
If your beneficiaries get out of date, your assets could pass to beneficiaries that are no longer appropriate. And, if you want to name children who are still minors as beneficiaries (whether primary or contingent), you need to talk to your advisor to make sure you do that in an appropriate way for your state–using, for example, a UTMA (Uniform Transfers to Minors Act) designation, or a trust. There are other nuances, too, such as if your state is a community property state which can require your spouse to be a 50% beneficiary of your life insurance.
All told, you should definitely review your beneficiary designations (and named guardians) and be sure to get professional advice that they are set up correctly. Or else, once you’re out of the picture, it could lead to some very unintended consequences.