Beneficiary Form Review: The Gift That Keeps on Giving

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

For Valentine’s Day many of us gave or received tokens of love such as flowers, candy, jewelry, or a nice dinner in a restaurant. But now Valentine’s Day is over (much to Hallmark’s chagrin). That makes this a good time to think about our beneficiaries. How much do we love them? Do you love your beneficiaries enough to take the time to check up on your beneficiary forms for your retirement accounts? You really should consider doing this because there are plenty of “un-loving” consequences if you don’t.

Your Estate Inherits
This can happen when there is no beneficiary form on file or if you actually name your estate on the beneficiary form. Your retirement account now becomes a probate asset. It is subject to claims of creditors. Worse still, it could go to the wrong beneficiary. But even worse, your beneficiaries lose the ability to stretch out distributions over their own life expectancies. This is not a good way to show you love them!

The Wrong Beneficiary Inherits
This happens way too frequently. It happens when the beneficiary you have named on the beneficiary form dies before you do and you never update the form. It happens when there is a divorce and you never update the form. It happens when there is a remarriage and you never update the form. You get the picture. Your beneficiary forms need to be updated whenever there is a significant life event in your family, good or bad, such as a birth or an adoption.

The wrong beneficiary can also inherit when your other estate planning documents have not been updated. Do you have a trust named as the beneficiary of your retirement account? Do you still need that trust? How old is the trust? The estate tax rules have changed significantly in the last few years. Does that old trust still accomplish what you want it to?

Problems can be avoided or corrected by having contingent beneficiaries named on the beneficiary form along with the primary beneficiary. In the case of the premature death of the primary beneficiary, the contingent beneficiary will inherit the retirement plan at your death without you having to do anything. In the case of the wrong beneficiary inheriting, he or she could disclaim the account, and it would go to the contingent beneficiary. I actually know of cases where the beneficiary wanted to do this, but there was no contingent beneficiary in place to accomplish it.

So show your beneficiaries that you love them. Do a beneficiary review and ensure that they get the assets you want them to receive. Then give them a call or send an email. Maybe you can make a celebration out of your beneficiary review. Perhaps, we could even get Hallmark to carry cards for the occasion.

Article Highlights: 

• Think about beneficiary reviews now
• Make sure your assets go to the right beneficiaries
• If not — the estate could inherit the account or it could go to the WRONG beneficiary