Did you know that your Will usually doesn’t control who receives your retirement accounts (IRAs, 401(k)s, etc.) when you die? Distributions from those accounts are controlled by a beneficiary designation form that you file with the company holding that account, not by what you put in your Will.
So, whenever you update your estate planning, you should check to see who you’ve named as your beneficiaries (you may have filled out the beneficiary designation form a long time ago), and that your designation works with that shiny new Will you just signed. You can think of the beneficiary designations for your retirement accounts as the other half of your estate plan, and if the two halves don’t work together, the overall result may be very different than what you thought it would be when you signed your Will.
Another reason to check your beneficiary designations is that you may not actually have a designation form on file with the company. You might not have filled one out when you opened the account or the company may have lost it.
If you die without a beneficiary form on file, your account goes to the company’s default beneficiaries. This may be your spouse or children, but a common default option is to name your estate as the beneficiary. Two potential issues with your estate being the beneficiary are: (1) your estate will probably pay a lot more taxes on distributions from the account than an individual beneficiary would pay, and (2) your creditors have access to your account if it goes to your estate, which they wouldn’t if it’s left to one or more persons.
Knowing who you’ve named as your beneficiaries is one of the most important steps you can take in setting up your estate plan and checking your beneficiary designation is simple. Just contact the company that holds your retirement account and ask.