Jeff BogueJeff Bogue is an independent, fee-only financial planner with his firm, Bogue Asset Management, LLC, based in Wells. He has been a certified financial planner (CFP) practitioner since 1997 and is a registered investment advisor in Maine and Texas.
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Time to Review Beneficiary Designations
Nov 6, 2009 01:17 PM
Many people over the next several weeks will be required to update their employer provided benefit plans. Along with that it is an opportune time to review your beneficiary designations in employer provided life insurance and retirement plans, but also in your IRA’s, Transfer on Death (TOD) assignments, non-qualified annuities and life insurance held that is not provided by the employer.
Why is it a big deal? Because beneficiary designations trump whatever is dictated in your will. It may not seem logical but relying on your will to carry out intended plans in these types of financial instruments can be a big mistake and is very often overlooked.
Imagine these scenarios:
-Having your ex-spouse receive your retirement assets or insurance proceeds
-Improperly designating beneficiaries in an IRA, as a result the eventual recipient of the funds will have to distribute them within a five year period after your death regardless if they needed the funds or not (and taxed on them if a regular IRA).
-Setting up trusts as beneficiaries with your estate planning attorney, but failing to implement this designation with the investment or life insurance custodian. That would be wasted planning.
-Still having your parents as beneficiaries, when your spouse and children are the ones that need the money. What if your parents and the in-law spouse don’t get along?
-Having a child who has special needs and loses government assistance if they directly receive these funds due to an improper beneficiary designation.
-What if you marry for a second time, want to leave your employer based retirement plan to your kids and you think a prenuptial agreement will take care of you – wrong! The person isn’t a spouse when they sign a prenuptial and once you marry, ERISA law recognizes the spouse and gives that spouse rights to the retirement plan at that time. Once married, the spouse then has to waive their rights in an updated beneficiary form that is acceptable by the plan.
I strongly recommend that you take some time to review your beneficiary designations and determine if these still reflect your intentions or if adjustments need to be made. In the end, it may only take a few minutes of your time, but it’s worth reviewing.
Why is it a big deal? Because beneficiary designations trump whatever is dictated in your will. It may not seem logical but relying on your will to carry out intended plans in these types of financial instruments can be a big mistake and is very often overlooked.
Imagine these scenarios:
-Having your ex-spouse receive your retirement assets or insurance proceeds
-Improperly designating beneficiaries in an IRA, as a result the eventual recipient of the funds will have to distribute them within a five year period after your death regardless if they needed the funds or not (and taxed on them if a regular IRA).
-Setting up trusts as beneficiaries with your estate planning attorney, but failing to implement this designation with the investment or life insurance custodian. That would be wasted planning.
-Still having your parents as beneficiaries, when your spouse and children are the ones that need the money. What if your parents and the in-law spouse don’t get along?
-Having a child who has special needs and loses government assistance if they directly receive these funds due to an improper beneficiary designation.
-What if you marry for a second time, want to leave your employer based retirement plan to your kids and you think a prenuptial agreement will take care of you – wrong! The person isn’t a spouse when they sign a prenuptial and once you marry, ERISA law recognizes the spouse and gives that spouse rights to the retirement plan at that time. Once married, the spouse then has to waive their rights in an updated beneficiary form that is acceptable by the plan.
I strongly recommend that you take some time to review your beneficiary designations and determine if these still reflect your intentions or if adjustments need to be made. In the end, it may only take a few minutes of your time, but it’s worth reviewing.
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