beneficiary review

The end of the calendar year is a good opportunity to review, adjust, and take some actions relevant to a financial plan or investment strategy.  This blog post is one in a short series examining a few of those items.  The information below is not intended as formal advice for any particular circumstance, but rather a general discussion of the topic.

Many people have a number of assets that require them to name a "beneficiary" -- this would be the person, people, or institutions that stand to inherit the asset when the current owner dies.  Trouble arises when folks choose the beneficiary and then forget to review that choice over time.  The end of a calendar year is as good a time as any to take a minute and revisit these accounts and the designated beneficiary / beneficiaries.

retirement accounts (ira, 401k, etc)

In very general terms, "retirement" accounts allow a person to save money during their working years with the benefit of deferring income tax on the (potential) gains within those accounts until retirement age (typically 59.5 or older for most types of these accounts).  When the account is opened, the owner is able to name one or many beneficiaries to inherit any remaining balance when the owner dies.  These beneficiary designations can be made by percentage (25% to one heir, 75% to another, for example), and there are options on making the designations per stirpes or per capita (consult your tax / legal expert for more info on the difference)

life insurance / annuities

As with retirement accounts, when a person purchases a life insurance policy, signs up for a workplace insurance program, or invests in an insurance product like an annuity, there is an option to name a beneficiary to receive the proceeds of the policy when the insured person dies.  And similarly as with retirement accounts, too often people set up these beneficiary elections and then forget about them.

checklist

Here are a few things to consider when reviewing asset accounts and insurance policies with beneficiary elections:

• Have you experienced a significant change of life (marriage, divorce, new child, loss of a loved one, etc) that would suggest a change in your named beneficiary?
• Have you considered the impact on your estate planning implied by current designations (IRA assets passed to children may be heavily taxed, for example)?
• Is a charity / non-profit named as a beneficiary?  Has your relationship with that organization evolved in a way suggesting a change to the instructions?
• Have you reviewed your beneficiaries and wishes with your financial team (adviser, accountant, attorney)?