When it comes to estate planning, some people want to ensure their heirs get an equal share of their property, whereas others want to divide their assets differently. Regardless of how you decide to divide your wealth after your death, you should make sure that you have a proper estate plan or a will in place to ensure that your heirs receive what you intend for them.
The beneficiary forms for your retirement plan, individual retirement account (IRA), or life insurance might have given you the confidence that you can transfer your hard-earned wealth to anybody you want when you’re no longer around. Nevertheless, it would help if you informed your heirs well in advance that such documents exist.
However, this doesn’t mean that you share all the details with them. All they should know is that you have a will or an estate plan, and they have been named as beneficiaries for your insurance, investment accounts, and retirement plan.
Review your decision
Even if you already have a will or trust in place, you should revisit your decision over time. For instance, you may have opened an IRA in 2000, but your life has probably changed a lot since then. You might have been single then but married now, or you might have been married then but are single now, or you might have become a parent. As your life changes, who you want to care for after your death may change as well. Therefore, you may want to change your choices and rename your beneficiaries.
Depending on what type of accounts you have, there might be a different process for changing your beneficiaries. In the following sections, you will learn how to initiate changes in your assets.
Unlike employer-sponsored retirement plans, IRAs don’t allow your spouse to become a default beneficiary. The state laws operate IRAs instead of Employee Retirement Income Security Act or ERISA. With an IRA rollover, you can change the name of the primary beneficiary. You can speak with your financial advisor to initiate any changes in your beneficiaries or call the insurer’s customer service department.
Employer-sponsored retirement plans
ERISA operates and governs employer-sponsored retirement plans. This means that if the late accountholder were married, the surviving spouse would receive 50% of the deceased’s account balances. The same is applicable even if someone else is designated as the primary beneficiary. In that case, both the spouse and the primary beneficiary will receive half of the funds. This rule is applicable for all ERISA-governed plans, including pension plans or corporate-owned life insurance policies. If the accountholder remarries, the spouse receives 50% of the deceased’s asset. This rule also applies when the accountholder remarries with a child from the first marriage.
The beneficiary will receive the full death benefit upon the death of the account holder. Account holders can designate multiple beneficiaries that each receives a specific percent of the life insurance payout. However, if the beneficiary is not aware of the policy, they are very likely not to file a claim for the benefits. The beneficiary could also fail to file a claim if the policy papers are lost, so it is crucial to store all your essential documents in a secure place and ensure that your estate’s executor knows where to find the documents.
A trust fund allows a person to put money, life insurance, and other assets into it. Then, the trust is managed by a trustee until the owner’s death. At that time, the trust’s assets can be disbursed to the trust’s beneficiaries upon the person’s death. To change the beneficiaries or make other trust changes, the owner must work with the trustee. Trustees are typically trusted professionals such as attorneys or financial advisors and are paid for their management services. They will also manage the disbursement of the trust to its beneficiaries.
Estate planning is an integral part of the retirement planning process. If you have people or organizations that you would like to leave your assets to, then having a will or trust in place ensures that each of your beneficiaries will receive the appropriate portion of your assets. Each of your assets might have a unique process for making changes, so be sure to speak with your financial advisor and other trusted advisors to ensure that your plan is securely in place and benefits those you love most.