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Review Your Beneficiary Designations Before You Retire

Follow These Four Steps to Ensure Your Assets Stay Protected
| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®

Review Your Beneficiary Designations Before You Retire
Thursday, 12 May 2022

There’s a lot that goes into estate planning and, hopefully, you’ve got a plan in place to ensure your wishes are carried out. However, one piece of the puzzle that is missing for many people is ensuring that beneficiaries are listed for every policy and account – and that they are kept up to date. Indeed, it is critically important for you to review your beneficiary designations on any retirement accounts, annuities, or life insurance policies and make sure they each list one or more current beneficiaries. Why is this such an important step? Well, even if you have a will, it does not override your designated beneficiaries if it states something different.

Conducting a beneficiary review before you retire allows you to be sure that you have the correct beneficiaries listed and designations determined. This means reviewing your beneficiaries in light of your long-term goals and objectives while also taking into consideration tax laws and other policies regarding the distributions for each type of account or policy. Below are four steps to guide you as you review your own beneficiary designations.

#1. Determine that the named beneficiaries are correct.

As we go through life, there are so many changes that could impact who we want our assets to go to when we’re gone. People get married, get divorced, have children, experience death, and each time, there’s the risk that who you want to be your beneficiary will change as well. Any time you experience a significant life change, you’ll want to review all of your beneficiary designations along with any other estate planning documents you may have. This is incredibly important, as most states honor beneficiary designations over divorce agreements or new marriage licenses. This means that, if you forget to update your beneficiaries, you may have someone from your past inheriting your assets instead of who is meaningful to you in the present.

#2: Determine if the beneficiary is a minor.

Typically, states do not allow minors to directly receive any proceeds from a retirement account, annuity, or life insurance policy if they’re listed as the beneficiary. If you want to list a minor as a beneficiary, be sure that you’re aware of what your state says about inheritances left to minors first. Even if a minor is permitted to legally inherit the assets, the court may be restrictive with the terms of the inheritance by dictating how the funds can be used before the minor comes of age. So, you’ll want to be sure to plan accordingly if you’re going to keep a minor listed as a beneficiary to your accounts.


SEE ALSO: Five Life Transitions Where a Financial Advisor is Helpful


#3: Determine if there are any special circumstances surrounding your beneficiaries.

Along with considering the age of your beneficiaries, you’ll also want to determine if any listed beneficiaries have special needs or any other special circumstances such as issues with creditors or a history of drug abuse. These sorts of things could severely interfere with your beneficiary receiving their inheritance when the time comes. For instance, a beneficiary with special needs could lose any government benefits they may be receiving once they inherit the proceeds from your accounts. In a case where your beneficiary is indebted to one or more creditors, your inheritance could go directly to the creditors instead of to the person you designated.

This is not to say that you shouldn’t list someone with special needs or financial complications as a beneficiary. It simply means you may need to do some additional planning to ensure that your wishes are upheld. Consider setting up a trust for the benefit of the individual that you then list as the beneficiary. This will allow them to avoid any interaction with the court as well as protect them from any creditors, predators, or ex-spouses. Setting up a trust as a beneficiary for a life insurance policy or annuity is straightforward, but doing so for any retirement accounts may take some extra effort. Since it can be more complex, it may benefit you to work with an estate planning attorney.


SEE ALSO: Should You Pass an Inheritance on to Your Children?


#4: Determine how estate taxes may factor into your estate.

One of the biggest hurdles that come with an inheritance is the taxes that the beneficiary will have to pay upon receiving your assets. Taking the time to determine any estate tax concerns and working to minimize the taxes before anything happens to you will help make the transferring of assets easier on your beneficiaries. It can be difficult to know for sure how tax and non-tax laws will impact your legacy, so it might be a smart move to work with an experienced estate planning attorney or professional that you trust. There may be a chance that you have to adjust the ownership and titling of your assets if you want to make your estate as tax efficient as possible for your beneficiaries.

Concluding Thoughts on Reviewing Your Beneficiary Designations

While all parts of estate planning are important, it’s imperative that the beneficiary designations listed on any retirement accounts, annuities, and life insurance policies are updated and correct. This is not only to ensure that your wishes are being followed once you’re gone, but it’s also critical if you want to protect your assets from any unnecessary taxes, court intervention, or from landing in the wrong hands.

At TriCapital Wealth Management, we are committed to making a positive impact in our community and empowering our clients to make a difference, too. If you’re looking to incorporate some tax-savvy philanthropic strategies into your wealth management plan, contact us today.  


Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.

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