Tell Your Beneficiaries About Your Accounts and Policies

The beneficiary forms you filled out for your IRA, your workplace retirement plan, and your life insurance policy may provide you with some peace of mind knowing your loved ones will be taken care of after you die. However, one concern still remains. You have to tell them that these documents exist.

This doesn’t mean you need to share all the details. If you have decided that some of your heirs will get more than others, you can keep quiet about that decision as long as you live. However, you do want to let them know the essential details; they should know that you have a will and/or an estate plan, and they should understand that you have named beneficiaries for your retirement accounts, your investment accounts, and your insurance policies.

Review your beneficiary decisions regularly. For example, if you opened an IRA 15 years ago, your life has probably changed quite a bit since then. Were you single then, but are now married? Were you married then, but are now single? Have you become a parent since then? If you can answer “yes” to any of these questions, then you need to review that beneficiary form. Your choices may need to change.

Here is a quick look at how beneficiary decisions play out for a few of the most popular retirement accounts.

Employer-sponsored retirement plans. Employer-sponsored retirement plans, such as a 401(k) or 403(b), are governed by the Employee Retirement Income Security Act (ERISA), which rules that if the late account holder was married, the surviving spouse is entitled to at least 50% of the account assets. This rule also applies to other types of assets, such as pension plan accounts and corporate-owned life insurance.

For example, if you name a person other than your spouse (such as a child) as the primary beneficiary to your account, your spouse and the primary beneficiary may split the assets 50/50. A spouse can waive his or her right to the 50% by signing a Spousal Waiver form. For it to be allowed, however, he or she usually has to be age 35 or older.

It’s also important to note that if you remarry, your new husband or wife is entitled to 50% of the account assets upon your death. While a child may be named as the primary beneficiary of a retirement account after a divorce, remarriage will leave only 50% of the assets with that child upon death. Unless a Spousal Waiver form is signed, the new spouse will receive 50% of the account even if unnamed on the beneficiary form.

IRAs. Unlike an employer-sponsored retirement plan, a spouse does not have automatic beneficiary rights with an IRA. This is because IRAs are governed under state laws rather than ERISA. With an IRA rollover, the account holder can name anyone as the primary beneficiary.

Life insurance policies. When death occurs, the proceeds from a life insurance policy go to the named beneficiary. You may have heard that millions in life insurance dollars go unclaimed. Unclaimed life insurance happens when heirs do not know (or know how) to claim the money or when the policyholder misplaces the policy paperwork.

Update your beneficiaries; let your heirs know how important these forms are. While your beneficiary choices may seem obvious when you initially make them, time has a way of altering things. When did you buy your life insurance policy? Are you still living in the same home? Are you working at the same job? Have your priorities changed? In a stretch of five or ten years, some major changes can occur in your life, which may warrant changes in your beneficiary decisions.

Many people don’t realize that beneficiary designations take priority over bequests made in a will or living trust. Don’t assume or guess. Make sure your assets are set to transfer to the people or organizations you prefer.

My Life and Wishes® makes it easy to share your account and beneficiary information with your loved ones, as well as keep it up-to-date. Record this important information in your account, then share it with your account co-owner and authorized viewers.