The holiday season is usually full of reconnecting with family and friends. As you get updates on the lives of those closest to you, it’s a good idea to consider whether the beneficiaries on your investment accounts are up to date.
The following hypothetical anecdote may explain why it’s important to keep your beneficiaries updated and to make sure you receive confirmation of any changes you make when complete.
An account owner had two small IRAs and one large IRA, all three of which had his domestic partner named as 100% beneficiary. He later submitted a request to the custodian of these accounts to change the beneficiaries to be equally weighted between 4 individuals, one of which was his partner. Unfortunately, the form was filled out incorrectly and was rejected by the custodian. The account owner then died suddenly without completing the beneficiary change. After a three-year dispute between the beneficiaries and the custodian, the partner was awarded 100% of the large IRA.
There are two main lessons to learn from this case:
- Maintaining accurate beneficiaries on all accounts, especially those that bypass probate like retirement plans, is critical to honoring your wishes. Custodians of your investment accounts can only take action based on that which they have record. Regardless of an updated will or other written plan, your beneficiaries must be kept up to date at the custodian in order for your wishes to be followed.
- Working with a financial professional that can follow up with you and/or for you can ensure beneficiary designations are updated in a timely manner. Sadly, many beneficiary forms are not created for ease of use or understanding, so going it alone like we saw in the example above can lead to delays. If you choose to work with a professional who is knowledgeable of processes, form, and required timelines, it can make a big difference in simple yet extremely important ways.
Content in this material is for general information only and not intended to provide specific investment, tax or legal advice or recommendations for any individual. Consult the appropriate professional prior to making any decision.