Over our lifetime, we will encounter important life changes, whether it be the birth of a child, the start or end of a marriage, or the passing of a loved one. When it comes to retirement benefits planning and life insurance policies, you must review and update your beneficiaries regularly. At the least, you should review and likely make changes to your beneficiaries when life-changing events occur.
A beneficiary is the designated person (or entity) that will receive money and other benefits upon your death or the maturity of the policy. If you do not choose a beneficiary, the beneficiary will either default to your estate (which can often have negative tax consequences) or follow the default rules under the plan or policy. Accordingly, while you are often not required to designate a beneficiary for retirement accounts or life insurance policies, failing to do so often leads to unintended consequences.
At Sessa & Dorsey, we recommend that you review and update your beneficiaries, along with your other estate planning documents, every few years and absolutely when life-changing events occur. Frequent and consistent reviews ensure that your assets will be given to those individuals or organizations you choose. You have worked too hard to earn and save your assets; you do not want to leave their disposition at your death to chance and default rules.
How do I update my beneficiaries?
The process of updating your beneficiaries should be fairly easy. For most retirement accounts and life insurance policies, you should be able to go online, log into your account, and make the necessary changes within a few minutes. In some cases, you may need to go to your employer or policyholder to request the changes. And if your spouse is included on an account, you may need their consent before making any changes to the beneficiaries. If your estate plan Includes trusts, your attorney may need to provide you with appropriate language to designate a trust as the beneficiary.
What happens if I pass away without updating my beneficiaries?
If you pass away without updating your beneficiaries, the money and benefits will go to whoever was designated at the time of your passing, or to the default beneficiaries.
In the case where a significant life change has occurred, such as your remarriage, and your beneficiary does not reflect your new spouse, assets can pass in unintended ways.
My Will designates my beneficiaries. Does that cover me?
The short answer is, no. Retirement account and life insurance policy beneficiaries override the provisions in your Will. This is why it is so important to frequently check your accounts and policies to ensure the beneficiary information is up-to-date.
If you require assistance with your beneficiary designations, please contact us at (443) 589-5600. At Sessa & Dorsey, we are here to guide you through this process.