Berge & Berge, LLP Blog

Tuesday, January 24, 2017

Update Your Beneficiary Designations in 2017

When should I update my beneficiary designations?

For those of you who have taken the leap into estate planning, congratulations! Hopefully, you've created a will or revocable living trust, perhaps an irrevocable Medi-Cal trust, as well as advanced medical directives such as a healthcare proxy and a living will. But your work is not done yet. In fact, now that the new year is here, it is essential to ensure your estate plan stays up-to-date.

In particular, it is crucial that beneficiary designations on retirements accounts and life insurance policies are updated since these assets are distributed outside of the estate. There are a number of reasons to change beneficiary designations, including:

  • A new marriage
  • The birth or adoption of a child
  • The death of a beneficiary
  • A minor reaching the age of 18
  • A divorce

Under federal law, a spouse is automatically designated as a beneficiary on a 401(k) or other retirement account. If your spouse predeceases you and you do not update the designation, the assets may go to your estate when you die and be distributed in a way that was not intended. One way to avoid this situation is to name successor beneficiaries.

It is also crucial to change the beneficiary designation if you have children after beneficiaries were previously designated. Moreover, once the children reach the age of 18, you may decide not to keep them as beneficiaries. For those who are single, they can either name anyone as the beneficiary, or the estate can be the default beneficiary.

Finally, given the prevalence of divorce in our society, beneficiary designations should be reviewed and revised in the event that you end your marriage, and also if you get remarried. This can become complicated since retirement assets are also be considered marital property that are subject to division in a divorce. Moreover, by not updating your designations, you surviving loved ones may become entangled in a contentious and costly lawsuit.

The Bottom Line

In the end, by not naming beneficiaries, or failing to update your designations, the courts may be required to make these decisions. In addition to keeping your beneficiary designations up to date, it is also important to update your estate planning documents reflect changes that may occur over your lifetime. By engaging the services of an experienced estate planning attorney, you can ensure that your assets are passed on to your loved ones according to your wishes. 

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