Alert: Review Beneficiary Designations
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Alert: Review Beneficiary Designations

Alert: Review Beneficiary Designations

Sometimes federal tax laws make us lax in reviewing the things that matter. Beneficiary designations is one such example. This is because there is a federal estate tax exemption of $5.45 million for you and an additional $5.45 million for your spouse. This means the likelihood of your death creating an estate tax problem is remote. Correct? Not so fast. Here are reasons an annual beneficiary review is important.

Beneficiary designation can over-ride a will. There is often the false assumption that a written will or divorce decree always over-rides beneficiary designations in other accounts. This is not true. In many cases, the document with the most recent date over-rides older designations. In other cases, even though a divorce decree removes a beneficiary in an account, if it is not also done at the account level the ex-spouse could still receive the funds.

States rules differ. Just because the federal estate exemption is high, it does not mean the state exemption is also high. Many states have lower exemption limits, making a planned beneficiary approach more important for all of us.

The will is still important. Your beneficiary designation review should also include a review of your will. You may wish to add clauses to designate alternative beneficiaries should someone die. The more specific, the more likely your heirs will be able to avoid the time necessary to go through the probate process.

What accounts to check. A review of beneficiary designations should include the following:

  • Insurance policies
  • Annuities
  • 529 college savings plans
  • Bank accounts
  • Investment accounts
  • Pension plans
  • Retirement savings accounts (SEP IRA, Traditional IRA, SIMPLE IRA, Roth IRA, 401(k), 403(b), plus others)
  • Company benefits
  • Will

Your beneficiary designation should be reviewed annually or whenever there is a change in your situation. Typically that occurs with a major life-event such as marriage, divorce, a new birth or death, retirement, or moving. But a review can be required whenever something changes, including your desire to give more (or less) to someone or to add contingencies to your current beneficiary set-up.