A Vital Valentine: 5 Tips for Managing Your Beneficiary Forms

This Valentine’s Day, take time to consider your retirement accounts, IRA’s, annuities, pensions, life insurance and your Payable on Death (POD) bank accounts as Valentines or gifts for your loved ones.  All of these assets use beneficiary forms, each with the potential to create a problem unless you remain active with your planning. One day (and hopefully not too soon) each of these assets will pass to your spouse, children, sibling, friend, niece, nephew or charity determined solely by a beneficiary designation form. The beneficiary designation form is one of your most important estate and financial planning documents, but is often overlooked and neglected during reviews with legal and financial advisors.

Often families that we advise are surprised when, as part of Security Retirement Advisor’s comprehensive review process, we stress the importance of updating and periodically reviewing the beneficiary forms associated with their retirement and other financial accounts. Mistakes and poor planning in this area can result in an unintended beneficiary inheriting a lifetime of retirement savings.

A few weeks ago, I commented on some of the potential problems with designation papers in an article for Investment News, “When it comes to client benefits, it's forms over function - Spouses, children lacking designation papers could be out of luck; problem magnified by bank mergers.”  In this article, I discuss a national case where a $1 million dollar pension plan went to an unintended beneficiary.

In the spirit of Valentine’s Day and doing something special for the ones you love, here are a few tips to consider regarding these critical financial forms.

1. Locate Your Forms and Keep Copies with Other Important Documents:  It is not uncommon for a beneficiary form to be over 30 years old or even unable to be located. The probability of this happening has increased with all the merger activity between financial institutions over the last decade.
2. Review and Update Annually: Has there been a death, birth, marriage, disability, divorce or any other changes that you want to include in your estate planning? Security Retirement Advisors often sees this when reviewing older life insurance policies, pensions and retirement accounts where an ex-spouse or deceased parent is listed as the sole beneficiary on an account. Make sure that everyone that you want included on this form is listed, and remove all others. Don’t leave a mess which increases attorney fees and time delays when your family least wants to deal with these issues. You should expect this as part of your periodic reviews with your financial advisors on all of your accounts at a minimum of annually or as your situation changes.
3. Have Back-Up Beneficiaries: This can be critical. It’s always a good idea to have a back-up plan on your beneficiary forms. Assign a contingent beneficiary. Also, educate yourself on the term “per stirpes” and decide if it should be included on your beneficiary form designations so that you don’t inadvertently disinherit grandchildren. 
4.  Address Trust Provisions and Special Needs: If you want your retirement accounts to go through your trust, make sure this document meets legal “pass through” provisions. Do you have beneficiaries from a former marriage? Do you have minor children or grandchildren listed as beneficiaries? How about beneficiaries with disabilities that you want included? Visit with legal counsel and decide how you should best handle these situations and ensure it is reflected on beneficiary forms.
5. Stay Proactive: No one likes to deal with these kinds of issues and most families make these kinds of financial decisions without giving it much thought. However, death never comes at a convenient time and we all probably know  of at least one good family that was divided due to poor estate planning by the parent who passed away. If you are not receiving good advice in these areas with the professionals that you work with, consider a second opinion.

If you would like a complementary “3 Step Review” of your own retirement plan, call Secured Retirement Advisors at 952-460-3260.