Review beneficiary forms, spousal rights and your intended estate plan together. Learn why lifetime access and inheritance require different arrangements.
March 18, 2024 · Financial Forte Staff
Historical article: prepared retrospectively using information available as of March 18, 2024.
Updating a will can feel like finishing an important task. Yet the beneficiary form on an old retirement account may still name someone you chose years ago. The two documents can exist side by side without anyone noticing that they describe different intentions.
IRA agreements and life insurance policies provide for beneficiaries and have their own procedures and terms. Review those arrangements alongside your will, with attention to applicable law and spousal protections. Don't assume that changing one document automatically changes the others.[1]
Find the designation the institution actually has
Make a list of retirement accounts, life insurance policies and other accounts with beneficiary provisions. Request or download the current designation on file for each. A copy of an unsigned form in your personal folder doesn't establish what the institution has accepted.
Review names, relationships and contact information. Confirm whether both primary and contingent beneficiaries are listed. A contingent beneficiary generally becomes relevant when the primary designation cannot take effect as provided under the arrangement, but the actual form and account terms should be checked.
Look at percentages and the treatment of a beneficiary who dies before you. Similar-looking forms can offer different choices. If you don't understand an option, ask the institution and your estate-planning attorney before choosing it.
Keep the review organized by account. An update at one financial institution usually does not update another account elsewhere, even when the same people are intended to receive both.
Compare the forms with the plan you intend
Elena, an account owner in this hypothetical example, has two adult children. Her current will divides her estate equally between them. An older IRA beneficiary form names only her daughter, while a life insurance policy names both children equally.
Elena should not assume the will automatically makes the IRA designation equal. She needs to review the IRA's governing terms and applicable law, then submit any intended change through the institution's required process. The example is about identifying a mismatch, not predicting the legal outcome of a particular estate.[1]
If Elena wants one child to receive a larger account because that child will “share it fairly” later, the plan needs another look. A beneficiary may have no obligation to make the transfer Elena informally expects, and a later transfer can create its own legal and tax questions.
The clearer approach is to express the intended arrangement in appropriate documents while Elena can explain and approve it. That may involve direct designations, a trust or another structure, depending on her goals and the attorney's advice.
Equal percentages also do not necessarily produce equal after-tax value when the assets have different tax characteristics. If equality is the goal, define what equality means before relying on account balances alone.
Give family changes more than a quick glance
Marriage, divorce, a death, a new child or a beneficiary's changed circumstances can justify a review. Certain employer retirement plans provide important spousal rights, and a different beneficiary may require valid spousal consent. Don't treat an online form as proof that all legal conditions have been satisfied.[2] Ask the institution to identify any consent, witnessing or supporting-document requirements before submitting the change.
Divorce deserves particular care because account type, court orders, governing law and plan rules may interact. An assumption that an old designation is automatically canceled can be as risky as an assumption that it must always remain effective. Ask for a specific review rather than relying on a general rule remembered from another account.
Also consider beneficiaries who are minors or receive needs-based assistance. A direct inheritance may create administration or benefit-eligibility problems that an appropriately designed plan could address. The answer requires legal guidance tailored to the person's circumstances; simply naming a relative to hold the money informally may create a different problem.
The purpose of these questions is to make your intentions workable, not to make every estate plan more elaborate.
Coordinate the designation with access and authority
A beneficiary designation generally concerns what happens at death. It does not give the person authority to help manage your money during your lifetime. Powers of attorney, account ownership and trusted-contact arrangements address different roles.[3] A trusted contact alone generally cannot place trades or withdraw money for you.[3]
That distinction matters if the same adult child is expected to help pay bills now and inherit later. Confirm the authority required for current assistance separately from the beneficiary choice. Being named in one role doesn't automatically authorize every other task.
Let the appropriate people know where records are kept, while protecting account numbers and other sensitive information. They don't need unrestricted access to every account merely to know which institution to contact when needed.
Confirm that the review produced an accepted change
After submitting a form, obtain confirmation that the institution accepted it. Review the resulting record and keep it with your estate documents. If an institution rejects a designation or requests additional information, the task remains unfinished until that issue is resolved.
Elena's practical next step is to obtain the IRA designation on file and compare it with the outcome she intends. Only then can she decide what needs changing and whether the other accounts fit the same plan.
Choose one account this week and complete that process from request through confirmation. A beneficiary review becomes valuable when the institution's records, the legal documents and your wishes are coordinated, rather than merely remembered as something you handled long ago.
Related reading
Have more questions about coordinating beneficiary forms with your wishes? Complete the Financial Forte questionnaire to get started on connecting with an advisor who can help answer your questions and explore next steps.
The contact invitation is current; it does not imply this contact path existed on the historical reference date.
Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.
Sources
- [1] IRS Form 5305-A: Traditional Individual Retirement Custodial Account — April 2017; NAIC Life Insurance Buyer’s Guide — 2018; copyright and catalog confirmed
- [2] What You Should Know About Your Retirement Plan — September 2021 edition
- [3] CFPB/SEC: Planning for Diminished Capacity and Illness — July 2021
