Estate Planning: The Importance of Beneficiary Reviews

When was the last time you checked the beneficiaries listed on your investment accounts and insurance policies? If you cannot remember, it may be time to take a closer look.

Beneficiary designations are easy to overlook, but they can have a significant impact on who receives your assets after your death. Retirement accounts, investment accounts, life insurance policies, and other financial products often allow you to name individuals or organizations to receive the assets directly. These designations can take precedence over instructions in your will.

Life Events Should Trigger Beneficiary Reviews

Your beneficiary designations may have been appropriate when you first joined the military, but circumstances can change over the years. Marriage, divorce, the birth or adoption of a child, the death of a beneficiary, or changes in family relationships may all be reasons to review your designations.

For example, someone who named their parent as a beneficiary years ago when they enlisted, may still have their parent listed as the beneficiary on SGLI and TSP account after they are married. Unless the beneficiary is updated, the account and life proceeds will pass to the parent in the event of the service members death.

Likewise, if a beneficiary has died, leaving the designation unchanged can create unintended complications. It is important to review both primary and contingent beneficiaries to make sure your wishes are clearly reflected.

Beneficiary Designations May Override Your Will

One of the most important reasons to review beneficiary designations is that assets with named beneficiaries generally pass according to the account or policy's beneficiary designation rather than simply following the instructions in your will. This can create an unexpected result if your estate plan and beneficiary forms do not match.

For instance, your will might state that your assets should be divided equally among your children, while an old retirement account still names only one child as the beneficiary. The account will not automatically be divided according to the will and could lead to an unequitable division of assets.

This is why reviewing your beneficiary designations should be considered an important part of maintaining your overall estate plan.

Don't Forget About Contingent Beneficiaries

Naming a primary beneficiary is only part of the process. You should also consider naming contingent, or secondary, beneficiaries.

A contingent beneficiary is the person or entity designated to receive the assets if the primary beneficiary cannot. Without an appropriate backup designation, the assets may be distributed in a way you did not anticipate, depending on the account agreement and applicable law.

Reviewing these designations can help ensure that there is a clear plan for your assets under different circumstances.

Review Beneficiaries Regularly

A beneficiary review does not necessarily require a major financial-planning project. A periodic review of your accounts and policies can help identify outdated information.

Consider reviewing your beneficiary designations:

• After a marriage or divorce
• After the birth or adoption of a child
• After the death of a beneficiary
• Following a significant change in your family situation
• When you create or update your estate plan
• When you open a new investment or insurance account
• Whenever your financial or estate-planning goals change

The best practice is to keep a list of all your accounts and policies with your estate planning documents so your executor has a record of assets and insurance policies.  If you make changes to the beneficiaries, it is also wise to confirm that the financial institution or insurance company has actually processed the changes you have made.

Make Beneficiary Reviews Part of Your Financial Routine

Your beneficiary designations are an important part of your financial plan, but they are often "set and forget" documents. Taking a few minutes to review them can help prevent an outdated designation from undermining your current wishes.

If you have multiple investment accounts, retirement accounts, or insurance policies, consider discussing your beneficiary designations with your financial advisor, estate-planning attorney, or tax professional. They can help you understand how your designations fit with the rest of your financial and estate plan.

The bottom line: Your financial life changes over time, and your beneficiary designations should keep pace. A regular review can provide greater confidence that the assets you have worked hard to build will be directed according to your wishes.

About Red Clover Wealth Management

Red Clover Wealth Management is a wealth management firm for military families and government employees looking for an action plan to live their best lives. The firm’s team is committed to helping clients navigate the complexities of today’s financial landscape by providing realistic advice and a customized plan of action. With an emphasis on relationships and services including financial planning, investment management, and tax planning, Red Clover Wealth Management helps clients build—not just maintain—wealth across the United States.