What Is Involved is a Beneficiary Review?

Beneficiary review
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People should undertake a beneficiary review every few years.

You have several types of assets.

You own a home.

You have retirement accounts and bank accounts.

You even purchased a life insurance policy.

According to a recent The Street article titled “Secure your IRA – Review Your Beneficiary Forms Now,” some of these assets should be distributed outside of your last will and testament.

A beneficiary review can protect your estate from unnecessary taxes and penalties.
You should conduct a beneficiary review after major life changes.

Assets like your IRAs or life insurance policies have beneficiary designations.

When these accounts were created or purchased, you filled out paperwork.

As part of this process, you designated an individual or several individuals to receive the funds when you die.

In short, you signed beneficiary designation forms.

This should not be the final time you review this paperwork.

You should conduct a regular beneficiary review.


Circumstances change.

Your beneficiary or beneficiaries may die.

If this happens and you fail to name another, the asset will be paid to your estate when you die.

Your heirs will need to wait for the asset to move through probate rather than receiving it outright.

A beneficiary review also has tax implications for your heirs.

If your IRA is paid to your estate, then it must be emptied within five years of your death (if you die before the required beginning date).

This can come with a significant tax bill for your heirs.


What should you do in a beneficiary review?

Gather copies of your beneficiary forms from the custodial institutions.

Make sure every form has a primary and contingent beneficiary.

If you divided your shares by percentages, these percentages need to add up to 100 percent.

No, seriously.

After a divorce, marriage, death of a loved one, and birth or adoption of a child, you should conduct a beneficiary review.

If you have not completed a beneficiary review since before the SECURE Act to effect (January 1, 2020), you will want to do so.

This legislation made significant changes to tax law.

Without a beneficiary review, your estate may be subject to avoidable taxation.

In particular, you should address the creation of new classes of beneficiaries, rules for trusts, and the requirement for non-spousal beneficiaries to empty the trust within 10 years (with limited exceptions).

Consult with your estate planning attorney if you have questions about how the SECURE Act should influence the actions you take during your beneficiary review.

Reference: The Street (Dec. 28, 2020) “Secure your IRA – Review Your Beneficiary Forms Now”

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