• If you have a will, consider talking to your attorney about designating your estate as the beneficiary of your retirement accounts. That way, you can achieve the intent of your will regarding these assets. Estate attorneys don’t want retirement accounts to transfer outside of wills that include provisions governing the distribution of assets for specific reasons. Designating a beneficiary for retirement accounts other than your estate might override estate-planning goals of reducing taxes, qualifying a special-needs child for government benefits or protecting assets from creditors, divorced spouses or a spendthrift heir. Such goals are often overlooked by investment advisors unaware of the problems they may cause by asking clients to designate a beneficiary for retirement accounts without reconciling this with your will.
• When there aren’t any such distribution concerns, update your will to reflect the beneficiary status of your retirement accounts so that there are no conflicts and the status of these accounts is clear to all concerned.
• For changes in IRA beneficiaries, contact the financial institution that holds the account. Typically, this is an insurance company or a large financial services firm. Ask them for a change-of-beneficiary form. This time, keep track of your copy.
• To change 401(k) account beneficiaries, go to your HR department at work and ask to file the required paperwork. (When you get divorced is a natural time to do this.) If you’re married and want to leave your assets to someone other than your spouse, be sure to file required paperwork showing he or she is giving up all claims to the assets. If you’ve never been married, find out who is designated as a beneficiary and decide if you want to make changes.
• If you have 401(k) accounts that are still held by previous employers, have these accounts rolled over into an IRA. In the process, you can fill out beneficiary forms provided by the financial institution holding the IRA.
• On both types of accounts, be sure to designate secondary beneficiaries — if you’re married, typically, your children -- in the event that your primary beneficiary dies before you do. If you’re remarried and have grown children from your first marriage, they would probably be your primary beneficiaries. Your secondary beneficiaries would probably be your grandchildren.
By attending to this critical issue, which may involve the bulk of your wealth, you’ll assure that your true heirs inherit their rightful legacies.
Any opinions expressed here are solely those of the author.
Laura Mattia is a partner with Baron Financial Group, and a fee-only financial advisor. She's a Certified Financial Planner professional (CFP®), a Chartered Retirement Plan Specialist (CRPS®) and a Certified Divorce Financial Analyst (CDFA™) and holds an M.B.A. in accounting/finance. Her Internet radio show is Financially Empowering Women™ with Laura Mattia. A former professor at the Rutgers University Business School, Mattia is completing a Ph.D. in financial planning from Texas Tech University; her dissertation is on how to help women plan for retirement.