As we all know, life’s circumstances change (e.g., marriage, death, divorce, births, adoptions, remarriage, etc.). As a result, beneficiary designations may quickly become outdated and/or may be incomplete (e.g., missing a signature or date). We see, all too often, cases where an IRA client remarries and subsequently passes away. When the current spouse inquires about the IRA assets he/she finds that those assets still have the ex-spouse listed as the primary beneficiary. This unfortunate scenario illustrates the importance of maintaining up-to-date beneficiary designations.
Many investors mistakenly believe an up-to-date will is sufficient across all their investments. That may not be the case. Generally, beneficiary designations for annuity or life insurance contracts, retirement plans, IRAs or brokerage accounts will override a person’s written will.
Federal and state laws can come into play regarding who can be named as a beneficiary on retirement plan assets as well. Therefore, it is important to understand what rules apply for which accounts.
For these reasons, as well as others, it is critical for you to regularly conduct beneficiary audits with your clients on their retirement plans, IRAs, annuity and life insurance policies, and brokerage accounts to ensure the beneficiaries they have chosen accurately reflect their current circumstances and legacy wishes. Properly executed beneficiary designations can help avoid probate of these assets, so funds and property can be transferred immediately. Regular beneficiary audits help to ensure the account owner has properly documented his or her legacy wishes; identified and resolved any taxation questions; and considered account consolidation opportunities.
What’s more, by aligning certain types of accounts with the needs and tax situations of specific beneficiaries, your clients may be able to increase the value of their legacies and lessen the tax burden on the recipients.
A beneficiary audit is recommended any time a client experiences a life change, but sometimes those life changes are overlooked. Committing to at least annually reviewing beneficiary forms with your clients is a step to ensuring they will remain up to date.
Contact RLC at 877-275-7521 to discuss a beneficiary audit today!