IRAs are different from other assets. Company plan assets and insurance policies also are governed by different rules, and they must be considered separately from other assets.
They generally pass by contract, and not under the provisions of your will. The beneficiary form usually supersedes other documents, so planning and administering these documents are key, especially when the majority of your assets are held in these accounts.
These forms should be reviewed annually, and designations should be confirmed with all custodians to make sure their records correctly represent your wishes. Mistakes with beneficiary forms can be key in administering your estate, and your loved ones may suffer severe consequences if these forms are not in order upon your death.
Many times, disasters have arisen when beneficiary forms have not been updated for critical lifetime events, such as marriage and divorce.
Here are just a few that may be critical:
- Review your family situation and consider recent life events that may have an impact
- Name both primary and contingent beneficiaries for each account/plan/policy
- Consider the impact of disclaimers
- Know how the assets will be distributed if any of your beneficiaries are deceased (per stirpes vs. per capita)
- Implement your wishes with each custodian, verify that the information is correctly on file with each custodian with a signed and executed beneficiary form, and check to make sure that the beneficiary details are all correct
- Make sure both you and your financial advisor each have a signed copy of the correct beneficiary form on file
- Keep a copy of each custodian’s plan provisions to determine what things are allowable and not, and what the default provisions are when the beneficiary information is missing
- If charities are included as beneficiaries, put the proper safeguards in place so that they will not affect your other beneficiaries
- If you live in a community property state, consider the extra steps you might need to take
- Make sure spousal waiver requirements have been addressed
You probably don’t want a parent or sibling to receive your assets if you are now married. You probably don’t want your ex-spouse to receive the distributions now that you have a new current spouse. Some plans require new beneficiary forms to be executed upon divorce. It is critical to stay on top of these situations and prepare for them accordingly to make sure your wishes are executed.