News & Innovations

As part of the routine estate plan analysis, accounting for heirs helps ensure that you've accounted for their future. For starters, owing to a beneficiary designation that had not been altered for years, many ex-spouses experienced a surprising windfall.

To better ensure that all designations are consistent with existing conditions, consult with a financial advisor in the following steps.

1.  Get a handle on your accounts

Main and secondary beneficiaries are typically called for by health schemes, savings and retirement accounts, such as Roth IRAs, standard IRAs and 401(k) plans. To ensure that they genuinely need recipients, delve into the particulars of these funds, and remember who you've named to collect the benefits when you pass.

You may need extra documentation to set up receivers for more specific assets or non-traditional investments, such as private equity portfolios or specialty securities. Be sure there's a guide of all the holdings so estate executors may obey.

2.  Run a family roll call

If it’s been a while since you updated your beneficiaries, consider how your family has changed over the past few years. What marriages and births have expanded your family’s reach? What deaths and divorces have occurred? How have dynamics and needs changed as the family evolved and aged? As life happens, there’s a good chance your estate beneficiary designations will need updating.

When it comes to gifting to your current or future children or grandchildren, consider the idea that equal shares for everyone may not always be the fairest distribution. One son who has devoted his life to working at a nonprofit may get a different share of your estate than the daughter who became the CFO of a multinational organization. You may want to start communicating those differences now.

3.  Weighing the tax risks

Any distributions to recipients are occurrences that are taxable. Others do not. Federal inheritance and gift tax laws are a moving target, and a degree of uncertainty is often introduced by individual states. Your well-intentioned donations could reduce considerably if you don't account for tax issues.

Starting early with your gift will allow you to send your family tax-beneficial annual presents. This may be actual presents, or in the accounts you set up, they may be gifts. Having a concrete strategy early will help reduce the tax strain that the next generation will face, and understanding who the recipients are begins with that plan.

4.  Align your entire estate plan

Beneficiary designations can play an important role in your overall estate planning efforts. Life insurance and retirement account distributions are generally settled outside of your estate and are frequently completed much quicker. Calibrating between these accounts and other assets can help ensure the execution of your entire estate plan meets your wishes and desires.

5.  Make modifications as needed

Armed with all the information you’ve pulled together in steps one to four, change beneficiaries as needed. Then record the updates to smooth the process for next time.

A beneficiary review may be challenging both emotionally and logistically, but it’s an essential part of any estate checklist.

As you determine or review your beneficiary designations, consider these 7 common mistakes to avoid.