Will your heirs receive a fair share of your wealth? Will your invested assets go where you want them to when you die? If you have a valid will or estate plan in place, you can likely answer “yes” to both of those questions. The beneficiary forms you filled out years ago for your IRA, workplace retirement plan, and life insurance policy may give you even more confidence about the eventual transfer of your wealth. One concern remains, though: you need to tell your beneficiaries about your accounts and policies. This doesn’t mean sharing all the details. If you have decided that some of your heirs will receive more of your wealth than others, you can keep that decision private for as long as you wish.

However, it is essential to tell your beneficiaries about your accounts and policies so they know that you have a will or an estate plan. They should also be aware that you have named beneficiaries for your retirement accounts, investment accounts, and insurance policies.

It’s Wise to Review Beneficiary Decisions

You may want to revisit your beneficiary decisions. For example, let’s say you opened an IRA in 1997. Your life has probably changed quite a bit since 1997. Were you single then, and are you married now? Were you married then, and are you single now? Have you become a parent since then? If you can answer “yes” to any of those three questions, then you need to look at that IRA beneficiary form now. Your choices may need to change.

Here is a quick look at how beneficiary decisions play out for a few of the most popular retirement accounts.

Employer-Sponsored Retirement Plans

Employer-sponsored plans are governed by the Employee Retirement Income Security Act (ERISA), which rules that if the late accountholder was married, the surviving spouse is entitled to at least 50% of the account assets. That applies even if another person has been designated as the primary beneficiary. In such a case, the spouse and the primary beneficiary may split the assets 50/50. The spouse can waive his or her right to that 50% of the invested assets through a Spousal Waiver form. A spouse usually has to be older than 35 for this to be allowed. These rules also apply to other types of ERISA-governed retirement assets, such as pension plan accounts and corporate-owned life insurance.

If a participant in one of these retirement accounts remarries, the new husband or wife is entitled to 50% of those assets at death. If a plan participant names a child as the beneficiary of a retirement account after a divorce, the remarriage will leave only 50% of those assets with that child when the account holder dies. The child will receive 50% rather than 100% unless the new spouse waives their right to receive 50% of the assets. The new spouse will be in line to receive that 50% of the account even if unnamed on the beneficiary form.

IRAs

Unlike an employer-sponsored retirement plan, a spouse does not have automatic beneficiary rights with an IRA. That is because IRAs are governed under state laws rather than ERISA. One impressive estate planning aspect of an IRA rollover is that the new IRA owner has the freedom to name anyone as the primary beneficiary.

Life Insurance Policies

The death proceeds go to the named beneficiary; occasionally, a beneficiary may not know a policy exists.

Years ago, 60 Minutes conducted an exposé on the insurance industry, revealing that major insurers had withheld more than $7.5 billion in life insurance death proceeds from beneficiaries. The reason? The beneficiaries had never stepped forward to file claims.

While many of the policies in question were valued at $10,000 or less, others were worth over $1 million. The deceased policyholders had either failed to tell their beneficiaries about their accounts and policies or had misplaced the paperwork. As a result, their heirs had no knowledge of the policies or how to claim the money. For years, these insurance proceeds remained unclaimed, and only recently did the insurers feel pressure to pay out the benefits.

Update Your Beneficiaries

Let your heirs know how vital these forms are. Ensure that your beneficiary decisions on retirement, brokerage and bank accounts, college savings plans, and life insurance policies suit your wealth transfer objectives.

The Takeaway

Taking the time to review and update your beneficiary information is crucial to ensuring that your assets are distributed according to your wishes. As life changes, so too should your financial plans and the details within them. Whether it’s an IRA, a workplace retirement plan, or a life insurance policy, clear communication with your beneficiaries and regular updates to your estate documents can help prevent misunderstandings and ensure a smoother transfer of wealth.

By proactively managing these details, you can feel confident that your loved ones will receive the fair share of your wealth you intend and that your assets will go exactly where you want them.

Take the Next Step with Navalign Wealth Partners

If you’re unsure about where to start or need guidance in reviewing and updating your beneficiary information, contact Navalign Wealth Partners. Our team can help you navigate these important financial decisions and create a plan that aligns with your goals and values. Reach out today to ensure your wealth is properly protected and transferred to those you care about most.