Each spring, millions review their financial paperwork for tax filing, often overlooking some of their most important documents.
Tax season makes people get organized. Brokerage statements come out, retirement account summaries are on the desk, and insurance documents are somewhere in the pile. For a few weeks each year, most people see their full financial picture more clearly than at any other time. Then, after filing, everything gets put away and forgotten until next April.
This brief period, when your financial documents are accessible and your financial picture is clear, is an ideal time to review beneficiary designations and ensure estate planning documents reflect your current wishes.
This review is quick and usually does not require an attorney. Identifying an outdated designation or document now can prevent costly issues later.
Why Beneficiary Designations Matter More Than Most People Realize
A key point about beneficiary designations is that they take precedence over all other instructions.
A will is a legal document specifying asset distribution. It is drafted by an attorney, signed before witnesses, and reflects your intentions.
However, it does not affect assets that pass by beneficiary designation.
Life insurance policies, retirement accounts such as 401(k)s, IRAs, and 403(b)s, annuities, and certain bank and investment accounts pass directly to the named beneficiary, regardless of the will. The beneficiary designation controls these assets.
Beneficiary designations are often set once and then overlooked. For example, a 401(k) from a first job may still list a parent as beneficiary despite major life changes. A life insurance policy may name an ex-spouse, or a retirement account may name a child directly instead of a trust established later.
These mistakes are common and cannot be corrected after the account owner’s death, regardless of intent.
The Documents to Pull Out While the Paperwork Is Already on the Desk
Tax season brings important but often overlooked documents to your attention. Review the following while they are accessible.
Retirement account statements: 401(k), IRA, and other retirement accounts have beneficiary information on file with the plan administrator or custodian. Log in, review the beneficiary designation, and confirm the listed individuals. Typically, a spouse should be the primary beneficiary unless there is a specific reason otherwise. Federal law requires spousal consent to name someone else as primary beneficiary on most employer-sponsored plans. If minor children are named directly, consider whether a trust would be more appropriate.
Life insurance policies: Review your policy documents to confirm primary and contingent beneficiaries. For employer-provided policies, check your benefits portal, as these designations are separate from individual policies and can be overlooked. Ensure coverage amounts are still appropriate for your current financial situation and family structure.
Annuities and investment accounts: Some investment accounts have transfer-on-death designations, which function like beneficiary designations on retirement accounts. These assets pass outside probate and the will. Confirm these designations are current and consistent with your overall estate plan.
Bank accounts: Certain accounts have payable-on-death designations. If you have not reviewed these since account opening, confirm they still reflect your intentions.
Life Events That Should Have Triggered an Update (But Probably Did Not)
Beneficiary designations should be reviewed after any significant life change, but this is often overlooked. The following situations commonly leave designations out of date.
Marriage: If you married after setting up retirement accounts or life insurance, your spouse may not be named. Add them if needed.
Divorce: South Carolina law revokes gifts to a former spouse under a will at the time of divorce. It does not automatically update beneficiary designations on retirement accounts and life insurance. Federal law preempts state law for employer-sponsored retirement plans, so a state statute revoking a former spouse's rights may not apply. The beneficiary designation controls. If your ex-spouse is still named on any account, update it now.
Death of a named beneficiary: If your primary beneficiary has died and you have not updated the designation, assets may pass to the contingent beneficiary or, if none is named, through a more complicated process that may involve probate. Confirm your contingent designations are still appropriate and current.
Birth or adoption of children or grandchildren: New family members are not automatically added to beneficiary designations. If you want to include them, you must add them. For minors, consider whether naming them directly or using a trust is more appropriate.
A child reaching adulthood: If you named a trust as beneficiary when your children were young and they are now adults, consider whether the trust structure is still appropriate or if designations should be updated.
Significant change in relationship with a named beneficiary: Relationships change, but beneficiary designations do not update automatically. If the people named on your accounts no longer reflect your intentions, update them now.
Estate Planning Documents: What to Look at While You Are at It
Beneficiary designations are the most urgent item, but tax season is also a good time to review your overall estate plan.
Your will: When did you last review it? Does it still reflect your current family situation, including marriages, divorces, deaths, new children or grandchildren, and changes in relationships? Does it name the appropriate executor? If you have minor children, does it name the guardian you would want? A will drafted before significant life changes may not achieve your current intentions.
Powers of attorney: A durable power of attorney and a healthcare power of attorney authorize someone to act on your behalf if you are incapacitated. Are the individuals named still appropriate, available, and capable? If your agent has moved, developed health issues, or is no longer suitable, update the document.
Your advance directive: Do your healthcare wishes still reflect your current preferences for end-of-life treatment? Have your health circumstances changed? Is the document accessible to your healthcare agent, primary physician, and any specialists involved in your care?
Trust documents: If you have a trust, confirm it has been properly funded. A revocable living trust that was never funded does not serve its purpose. Ensure accounts and property intended for the trust are titled in the trust's name.
The Consistency Check
During this review, conduct a consistency check to ensure the different parts of your estate plan work together rather than at cross purposes.
For example, a will that leaves everything to your children is ineffective if a beneficiary designation on a retirement account directs assets elsewhere. A trust for minor children does not serve its purpose if the life insurance policy still names the children directly. An estate plan updated after a divorce may still have outdated life insurance and retirement account designations.
All elements of your estate plan must work together. They are often not reviewed as a whole when individual pieces are updated. Tax season, with relevant paperwork on hand, is an ideal time to review the entire plan.
What to Do with What You Find
Updating beneficiary designations is generally straightforward. Contact the plan administrator or account custodian, often online, and submit an updated beneficiary designation form. Keep a copy for your records and confirm the update was processed.
For estate planning documents requiring significant changes, such as rewriting a will, restructuring a trust, or replacing powers of attorney, consult an estate planning attorney. Not all updates require an attorney, but changes to core documents do. A handwritten note is not a legal update to a will, regardless of intent.
If you are unsure where your estate planning documents are or whether you have all necessary documents, address this as well. An estate planning attorney can review your documents, identify gaps, and help you understand what a complete plan should include.
Tax season may not be enjoyable, but it does bring financial documents to your attention. If retirement account statements and insurance documents are already available, spending an hour reviewing beneficiary designations and estate planning documents is a worthwhile use of the season.
When these steps are handled correctly, everything works as intended. If not, problems often arise at the worst possible time, when they cannot be fixed.
If you are in need of assistance, the attorneys at Collins Family & Elder Law Group can help.
