Tip: Review Your Beneficiary Designations Every Year

One of the most common and costly estate planning mistakes is failing to keep beneficiary designations current. This is a simple administrative task that prevents significant problems, and it takes about 30 minutes once a year.

Beneficiary designations determine who receives your retirement accounts (IRAs, 401ks, 403bs), life insurance policies, annuities, and in many cases bank and brokerage accounts with payable-on-death designations. These designations pass assets directly to the named beneficiary outside of probate and outside of your will. Your will does not override them.

Life changes that should trigger an immediate beneficiary review include: marriage, divorce, the death of a named beneficiary, the birth or adoption of a child, significant changes in your relationship with a named beneficiary, and any change in your estate planning goals.

Check not just your primary beneficiaries but your contingent beneficiaries. The contingent beneficiary receives the assets if the primary beneficiary predeceases you or cannot be located. An outdated or missing contingent beneficiary can result in assets going to your estate and through probate rather than directly to an individual.

Contact each financial institution where you hold accounts to review and update designations. Many can now be updated online. Keep a record of what you have updated and when. This small annual habit protects against a surprisingly common and consequential problem.