Beneficiary Designations

A mistake while filling out the forms for beneficiary designations can cause the form to be deemed invalid or may cause account holdings to be dispersed in a way not intended by the account holder. Because beneficiary designation forms on accounts such as IRAs supersede your last will and testament it is imperative that these forms are updated when major life changes occur.

Americans are placing more of their wealth in retirement accounts. Typically, these types of accounts are employer-based defined contribution plans like 401(k)s or IRAs. Both types of retirement accounts require that beneficiary designations be filled out correctly to designate recipients upon the account holder’s passing.

Below are some suggestions to help avoid errors that can end with family headaches or account holdings being dispersed in ways that are not intended.

  • If the institution that holds your investment or retirement account merges with another bank or changes names, take the time to fill out a new form. The previous form may no longer be valid.
  • It is possible for an institution to be unable to locate beneficiary documents; make sure to save a hard copy for your records. It is a good idea to make an emergency file for these types of documents.
  • When a major life event in your family occurs (birth, death, marriage or divorce) take the time to review your designated beneficiaries and fill out new beneficiary forms if there are any changes to be made. Because beneficiary forms override a Will or Revocable Trust it is essential that there is no contradiction between the will and the beneficiary form unless it is intended.
  • Don’t forget to add “in equal shares” or specific percentages next to names on the beneficiary form to avoid any confusion when the time comes to disperse funds.
  • If you are naming a Trust as a beneficiary of these types of accounts, it makes sense to discuss this decision with your estate planner as recent law changes could cause unintended accelerated tax liability in certain circumstances.
  • Consult a certified estate planner who is licensed within your state. Mistakes can even be made by professionals if they are not experienced or not aware of state-specific laws and rules.

If you have specific beneficiary designation questions or other estate related questions please contact Adam Thielen, CPA, Principal, at (651)483-4521.


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DISCLAIMER: This blog is provided for informational purposes only and is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant. Presentation of the information in this article does not create nor constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, the evolving landscape surrounding these topics is supported by regulations or guidance that are subject to change.

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