If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they'll receive. Here are some key facts about beneficiary designations.
What
are they?
*
When you designate a beneficiary
for an account, you are naming the person you want to inherit that account.
*
Your designation determines who
will inherit the assets in the account, regardless of what your will might say.
Generally, the assets will bypass probate and go straight to the person or
institution you named.
*
You can designate a person or
group of persons, a charity, a trust, or your estate. You may also want to
designate a secondary or backup beneficiary in case the primary is no longer
living.
Why
are they important?
*
It's important to keep
beneficiary designations up to date because they determine who will inherit the
assets in your accounts. Changing your will won't change the beneficiaries.
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There can be tax implications
too. With a traditional IRA, your choice of beneficiary can affect how quickly
withdrawals must be made and taxes paid. That can change the value of the IRA
to your beneficiary.
How
do you update them?
*
First, find copies of all your
current designations. Contact your insurance company and plan trustees if you
can't locate the documents.
*
Review them and decide what
changes you'd like to make. Make an appointment to go over the changes with
your tax or estate planning advisor.
*
Send your updated designations to
the account trustees. Make sure you receive confirmations and keep copies in
your records.
