One of the benefits of setting up an IRA or 401(k) is the way you can designate whom shall receive its contents after you die. By filling out the beneficiary designation on various types of accounts, such as IRAs, 401(k) plans and annuities, you will state exactly whom you want to benefit from the assets. The problem is, you can't forget about them.
There have been countless cases in which an estate planner sets up a last will and testament, and mistakenly believes that whatever he or she writes in the will is more important than the information that appears on a beneficiary designation.
A costly thing to forget about
For example, someone might set up an IRA in his or her 20s, naming a spouse as the beneficiary on the IRA. Ten years later, this person might get a divorce, and draft a last will and testament after finalizing the process. If the individual forgets to update the beneficiary designations on the IRA, it doesn't matter what the will says: The IRA contents will still go to the former spouse.Check in every year
Family members and current spouses -- i.e., the people who should have inherited the IRA assets -- have fought issues like this in court, and usually to no avail. The court will usually side with the information written on the beneficiary designation. To avoid a massive amount of your wealth passing to the wrong people after you die, make sure that you check in with all of your accounts that have beneficiary designations every year to ensure that they still reflect your wishes.
For that matter, you may also want to review your entire estate plan to double-check its accuracy and update it where necessary. People pass away, relationships change and children are born over time. With a brief, annual review of your estate plan, you and your family will never be caught off-guard.
The following checklist is an excellent place to start. On the checklist you'll find a list of events -- such as births, deaths, divorces, marriages, children reaching the age of 18, changes in wealth status and more. If one of these events has happened to you or your family, it's likely time for an update.