Why Updating Beneficiaries is Important to Estate Planning

Updating beneficiary designations is an essential part of estate planning, particularly when it comes to retirement accounts such as IRAs and 401(k)s. When you designate a beneficiary for your retirement account, you are indicating who will receive the account balance after you pass away.

It’s important to review and update your beneficiary designations regularly to ensure that they accurately reflect your wishes. Here are a few reasons why you might need to update your beneficiary designations:

1. Family changes: If you have experienced a major life event such as a marriage, divorce, birth, or death in your family, it’s important to update your beneficiary designations to reflect those changes. For example, if you have named your spouse as your beneficiary, but you have since divorced, you may need to update your beneficiary designation to name someone else.

2. Changing priorities: As your life changes, your priorities may shift. You may want to update your beneficiary designations to reflect those changing priorities. For example, if you have a new grandchild, you may want to update your beneficiary designation to include them.

3. Tax considerations: When it comes to retirement accounts, naming the right beneficiary can have significant tax implications. It’s important to review your beneficiary designations in light of your tax situation to ensure that you are making the most tax-efficient decisions.

4. Avoiding Probate: If you name beneficiaries on your retirement accounts, those assets will pass directly to them outside of the probate process. This can be a significant advantage as it avoids the time and expense of probate.

To update your beneficiary designations, you will typically need to complete a new beneficiary designation form. You should contact your financial institution or plan administrator to obtain the appropriate form and follow their instructions for submitting it. It’s important to ensure that your beneficiary designations are up-to-date and accurately reflect your wishes. You may need to seek professional advice to ensure that your beneficiary designations match the intent of your estate plan and meets your objectives. Call Gregorek & Associates at 425-284-3450 or fill out our contact form and we will be in touch to schedule a meeting.