You might not enjoy thinking about estate plans, but such planning is necessary to ensure your assets go where you want them to go.
It's important to regularly review your plans with your tax, legal and financial professionals.
You might be surprised by how many financial assets and legal documents have beneficiary designations tied to them. If you have an IRA, a 401(k) or other employer-sponsored retirement plan, a life insurance policy, an annuity, a transfer-on-death (TOD) arrangement, or any of a variety of other assets or accounts, you almost certainly named a beneficiary. This designation offers a simple, direct and efficient way to transfer assets to loved ones.
As time goes by, you may experience many life changes — and that's when beneficiary designations may need to follow. If you are like many people, you might forget to update these designations after a marriage, divorce or other change in your family situation. And because the beneficiary designation is a legally binding document, the asset will go to the person you once named as a beneficiary, regardless of your current relationship status.
It takes little effort to review your accounts and legal arrangements to ensure beneficiary designations are current — and if they aren’t, it’s pretty easy to change them. For some financial accounts, you may be able to update the beneficiary designations online. Just plan on reviewing your beneficiary designations regularly, but especially when you experience a life change.
In addition, ensure your beneficiaries know they will eventually receive your 401(k), IRA, life insurance proceeds or other assets that require a beneficiary designation. This knowledge may help them as they plan and maintain their own financial and investment strategies.
Although it’s important to update your beneficiary designations and communicate your actions, you need to tend to other areas of your estate planning, such as providing care for minor children or dependents, deciding whom you want to receive items that don't carry a beneficiary designation, naming someone to manage your affairs if you become incapacitated, and specifying the control you wish beneficiaries to have over their inheritance, among other considerations.
Everyone’s situation is different, so consult with your legal adviser to determine the level of estate planning you require.
Joe Faulk is a financial adviser.