Each spring I remind my clients. This year, I wanted to provide this same information to readers of this blog space.
Now is a good time to make sure that you have updated your beneficiaries. Your beneficiaries are the people in your life who are eligible to receive distributions from a trust, will, retirement plan account, or life insurance policy in your name.
This is especially important for family members who have remarried or are about to marry this year. In Minnesota, this now also applies to same sex marriages.
I have heard and read horror stories regarding misnamed and outdated beneficiaries. There is nothing worse than denying a family member your financial intentions because you forgot to update some paperwork.
Company 401(k) retirement plans are governed by federal law. That law states that the beneficiary of a married person is their spouse. Upon the death of a company 401(k) account holder, the spouse is entitled to the account balance. The only way around this is for the spouse to sign a Spousal Waiver.
I have seen cases where a company 401(k) retirement plan participant divorces and sets up his or her children as beneficiaries. That person then remarries. If that person would die, his or her current spouse would be legally entitled to the company 401(k) retirement plan account value. The children would be left out.
If you are not married, make sure that money goes directly to the people that you intend it to go to.
IRA account beneficiaries are governed by state laws. The owner of an IRA can set anyone up as their beneficiary.
In the case of an IRA account holder divorce, the beneficiary would also need to be changed. If an ex-spouse is not removed as an IRA beneficiary, the IRA money would be given to the ex-spouse.
A will or a pre-nuptial agreement does not change beneficiary designations. A beneficiary designation is more important than the information in a will or pre-nuptial agreement.
Always make sure that you update your beneficiaries as your life changes.
Ric Lager
Lager & Company, Inc.
