The new year is an optimal time to check in on some of the basics of your estate plan, such as making sure your beneficiaries and documents match up with your current wishes and situation. A lot can change in a year, and it’s easy to forget about estate documentation and account beneficiaries that have been filed away. A regular review of your beneficiary designations will avoid legal complications later on and ensure that your current wishes are reflected. Listed below are some common reasons to update your beneficiaries.

 

If you’re thinking not much has changed in your life over the last year, that may not be the case for your named beneficiaries. And, there are other factors that may come into play, such as legislation changes, the financial needs of beneficiaries, or other life events.

 

Milestone events have ripple effects.

Marriages, divorces, births, deaths, estrangements, and other events can all necessitate changes to your estate plan. You may want to include a new addition to the family, or exclude a beneficiary who is no longer part of your plan. If a named beneficiary has passed away, consider that their inheritance could then be passed along and distributed to their estate, which may or may not match your preferences. 

 

Your beneficiaries’ needs may have evolved.

Consider the financial needs of your beneficiaries. If you have older children with a high net worth, they may prefer to avoid the potential tax implications of inheriting a large sum of money. Or, you may have a beneficiary who relies on important government-provided services and may risk losing those benefits if their income or assets increase. There are a lot of factors that determine a beneficiary’s need, and all of your beneficiaries will undoubtedly have differing levels of need. This is where the decision between equal distribution of assets and need-based distribution comes into play, and a seasoned advisor can help you strategize when it’s time to update beneficiaries.

 

Changing tax laws create impacts.

Tax laws change frequently, creating impacts that might not be immediately realized. For example, the SECURE Act of 2019 shortened the timeline for inherited retirement account distributions. Instead of spacing out those distributions across the beneficiaries’ remaining lifetime, now in many cases an account must be fully dispursed over 10 years. That creates a larger tax burden over a much shorter period of time, which may be a consideration when you’re determining how to pass your assets on.

 

Update beneficiaries now to prevent headaches for your loved ones later.

When the beneficiary designation on the estate plan doesn’t match the beneficiary designated on a retirement account, for example, the retirement account designation will override the estate plan. Say you get divorced and you remove your spouse from your will and other estate documents, but neglect to make the change in your retirement account. Your spouse will still inherit the retirement account.

 

An expert estate planner can help you avoid common pitfalls.

Even if you consider your estate to be fairly simple and straightforward, it’s still easy to make a mistake, unintentionally leave out a beneficiary, or miss an important step. A qualified estate planner can not only ensure your estate plan is correct and comprehensive, but also strategize ways to handle and distribute your assets in the smartest way possible according to your wishes. 

Contact us today for a free consultation.