I was recently contacted by a fraternal organization regarding an estate that I represented. The decedent, who was in his 80’s when he died, had an insurance policy through the organization that had been issued when he was 16! His parents were the named beneficiaries. The estate is able to collect the insurance proceeds since the beneficiaries had predeceased the decedent. But how much easier would everything have been, and possibly more aligned with the decedent’s wishes, if the named beneficiaries had been current?

Certain assets, such as insurance and retirement accounts, pass by beneficiary designation and not under the terms of a Will or under the intestacy laws (unless the beneficiary has predeceased). When is the last time you checked your beneficiary designations on:

  • Your employer-provided life insurance?
  • Your employer-sponsored 401(k)?
  • Any individual retirement accounts (IRAs)?
  • Policies that you have purchased directly from an insurance company?

Your circumstances may have changed since you filled out that original beneficiary designation. Maybe you have married. Maybe you have divorced. Maybe you had named your parents or siblings or cousins, and they are either deceased or you are estranged from them.

Retirement accounts and IRAs are especially problematic if you do not have current beneficiaries. In general, if an individual is the beneficiary of a 401(k) or IRA, the individual may stretch out the payments over his or her life expectancy. Since the income tax was deferred when funds were deposited to the retirement account, the individual receiving the payments must pay the income tax – but if the payments are stretched out, the tax hit is lessened. If a 401(k) or IRA is paid to an estate, however, no stretch-out is available – an estate does not have a “life expectancy.” The estate will pay all of the income tax in one year, which could possibly be a very substantial tax hit.

Take a few minutes to check your records. Each insurance company or financial institution will have forms to change your beneficiaries if need be, many available online. For only a few minutes of your time, you will be able to save your family members much aggravation and possibly a great deal of money.