A 5-Minute Fix for Your Investment Accounts That You Don’t Want To Ignore
In 1987, a Proctor & Gamble employee named Jeffrey Rolison enrolled in the company’s 401(k) plan. However, when he died in 2015, his heirs had no claim to the account, which had grown to more than $750,000, because Rolison had made an all-too-common mistake.
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Read on to find out whether you’re making the same potentially costly mistake with your investment accounts — and what you can do to quickly correct it.
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The Mistake You Might Be Making With Your Investment Accounts
Rolison made a common mistake with his 401(k): He never updated his beneficiary information.
When he enrolled in his company’s retirement plan, he designated his girlfriend as his beneficiary. They broke up a few years later, but he never changed his beneficiary designation, so she legally received control of the account when he died. Rolison’s brothers did contest the former girlfriend’s right to the account, but the judge ruled in her favor.
Do you know who the beneficiaries are on your investment accounts, or if you’ve even named any beneficiaries in the first place? If you’re unsure, you could be making the same mistake as Rolison. Here’s a quick overview of what you should know about designating beneficiaries and what happens if you don’t name one.
What Is a Beneficiary Designation?
A beneficiary designation identifies who will get control of your retirement plan and other financial assets when you die. You can typically designate one or more persons, a charity, a trust or an estate as a beneficiary.
Many investment accounts allow you to assign both primary and contingent beneficiaries. When you die, your assets will go to the primary beneficiary unless they have also died or simply decline to take possession of the assets. Then, the contingent beneficiary will receive your assets.
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Beneficiary Designation vs. Will
Even though a will is a legal document that outlines how your assets will be distributed upon your death, it’s a misconception that a will supersedes a beneficiary designation.
Generally, investment account assets go directly to the beneficiaries designated in your investment plan documentation, even if your will lists a different beneficiary for the asset.
What Happens to the Account If You Don’t Name a Beneficiary?
If you die without designating a beneficiary, a probate court may decide who gets the account.
Probate is the legal process of asset distribution per the terms of your will. If you have no will, your state’s intestacy laws will determine how your assets are distributed. Probate can be a lengthy and potentially costly process for your heirs.
The 5-Minute Fix for Protecting Your Investment Accounts and Heirs
To designate or update the primary or contingency beneficiary of your investment accounts, you may be able to log in to your account online and make the changes. Or you can contact the plan administrator to find out what documentation is required. Either way, it’s a quick, simple task that can help ensure your assets go to the intended recipients when you die.
Some estate planning professionals recommend checking your beneficiary designations annually. Most advise that you review your beneficiaries after any major life event, such as marriage, the death of a spouse, divorce or the birth of a child.
Other Accounts With Designated Beneficiary Options
Individual retirement accounts and 401(k) plans are not the only accounts that allow you to designate beneficiaries. If you have other types of investment accounts, annuities or life insurance policies, they typically allow for beneficiary designations as well, which should also be reviewed regularly.
Similarly, banks and brokerage accounts may have a transfer-on-death (TOD) or payable-on-death (POD) option that needs to be kept up to date so your assets are distributed per your wishes upon your death. Like with designated beneficiaries, a TOD or POD designation will supersede your will.
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This article originally appeared on GOBankingRates.com: A 5-Minute Fix for Your Investment Accounts That You Don’t Want To Ignore