Avoid potentially costly mistakes for your estate by making sure beneficiaries for your assets are up to date
One of the easiest, yet often overlooked, components of an estate planning strategy is designating beneficiaries. Those whose estate plan includes a will or trust may wonder why this step is important. Transfer of some assets — such as life insurance policies, annuities, IRAs, retirement plans, and other employee benefit plans — can be based on beneficiary designations in place at your death. As your objectives for transfer may change over time, it is important to review those designations in context of your overall plan for asset transfer.
Confirm that beneficiary designations align with your core estate plan
Inventory your assets and determine which can have designated beneficiaries.
Review the designations in place to make sure your preferred beneficiaries are listed for each asset. Consider choosing a successor in case your designated beneficiary does not survive you.
If changes are needed, be sure to complete each form as indicated. Requirements may vary from one financial institution to another. For example, the custodian of a retirement plan may require a spouse’s signature, but a life insurance carrier may not. Similarly, some institutions may require a notarized original, while others may allow you to complete the designation online.
As you acquire new assets, make sure to consider establishing beneficiary designations in alignment with your estate plan.
Identify any unintended implications to your overall estate plans before finalizing your selections
While creating designations may be a clear-cut process, identifying potential tax implications for your beneficiaries may not be so easy. Your tax and legal advisors can help you review your beneficiary designations to identify any unintended impacts to your beneficiaries.
Remember that your beneficiary designation forms are one piece in the larger estate plan puzzle you have put together. It is important to consider how those designations — which operate outside your will or trust — may impact your overall strategy. For example, if your objective is to evenly divide all of your assets among your decedents, a designation could change that balance.
Your tax advisor also can help you weigh options for transferring taxable assets. If charitably inclined, you may consider naming a tax-exempt organization as a beneficiary of a taxable asset, such as a qualified retirement plan or nonqualified stock options.
Revisit your designations
As with all documents in your estate plan, it is a good idea to review your beneficiary designations regularly. Not updating your forms to reflect life events such as a birth, death, marriage, or divorce may mean that your wishes would not be reflected when your assets ultimately transfer.
Changes in the law may also create a need to revisit your beneficiary designations. For example, the SECURE Act of 2019 changed how some beneficiaries can receive qualified retirement plans. Your tax advisor can help you understand how the latest changes may impact your objectives for transfer.
Make sure you take the time to thoughtfully fill out beneficiary designations for eligible assets. Also, consider regularly discussing your plans with your tax and legal advisors and wealth planning specialists. Your advisors can help you avoid expensive mistakes and suggest opportunities to better reflect your ultimate wishes for your estate.
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are filed.
Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.