When creating an estate plan, one of the most important decisions is choosing the beneficiaries who will inherit your assets after you pass away. Beneficiaries are named in legal documents like your will, trusts, life insurance policies, and retirement accounts. But what happens if you want to change your beneficiaries later on?
The good news is that yes, in most cases you can change the beneficiaries on your estate planning documents and accounts. However, there are some important caveats to keep in mind when making beneficiary changes.
Life Insurance and Retirement Accounts
For life insurance policies and retirement accounts like 401(k)s and IRAs, changing beneficiaries is relatively straightforward. The beneficiary designations on these accounts operate separately from your will.
To change beneficiaries on a life insurance policy or retirement account, simply contact the administrator and fill out new beneficiary designation forms. Be sure to keep a copy for your records. The change becomes effective as soon as the forms are processed.
One thing to watch out for is contingent or secondary beneficiaries. If your primary beneficiary passes away before you, assets will pass to the contingent beneficiaries. Make sure to review contingent beneficiaries as well when changing your designations.
Wills and Trusts
Wills and trusts can also be updated to change beneficiaries. Modifying a will requires executing a codicil, which is a document that amends parts of your existing will.
For example, a codicil could state: “I hereby amend Article IV of my last will and testament to remove John Smith as beneficiary of my residuary estate and replace him with Jane Doe.” Like a will, a codicil must be signed and witnessed.
If you have a revocable living trust, the process is easier. Simply update the beneficiary designations written in the trust document and have it resigned and notarized. No need for a separate codicil.
Be aware that wills and codicils must be probated after you pass away for assets to transfer. So any beneficiary changes won’t take effect until after probate is finished.
Notifying Beneficiaries
While not legally required, it’s a good idea to inform your beneficiaries when you make changes. That way there won’t be any surprises or confusion later on.
Send the previous beneficiaries you are removing a letter explaining the change. For any new beneficiaries, provide information to help them properly manage inheritances.
Timing Matters
In most states, beneficiary changes made later in life hold up legally. But significant changes made right before death sometimes draw scrutiny.
Large changes made while in declining health or within a few weeks before death could be challenged. Accusations of undue influence by others may arise. To avoid potential issues, make beneficiary modifications as far in advance as possible.
Also be very careful about handwritten or verbal beneficiary changes on your deathbed. It’s best to execute proper legal documents.
Consult an Attorney
Beneficiary designations have important legal implications. Meet with an estate planning attorney when considering making changes to ensure they are done properly.
An attorney can help you:
– Draft any needed codicils and trust amendments
– Determine the legality and tax consequences of beneficiary changes
– Update other estate documents for consistency
– Avoid any errors that could invalidate the changes
By working with an attorney, you can modify your beneficiaries with peace of mind knowing it was done correctly. Although it takes some extra work, periodically reviewing and revising beneficiaries helps ensure your assets go to the right people after you’re gone.
