How To Complete A Change Of Beneficiary Form

If you don’t make friends with your change of beneficiary form it just might become your worst enemy one day.  That’s because one little mistake could mess up your entire estate plan. Luckily, this form is easy to tame. It takes less than 3 minutes to update and it’s simple to understand how to do so. But before we go through how to update your beneficiary form, let me explain how important this is by way of example.

A few days ago, I received an email that really steamed my broccoli. Jim, a very nice Pilgrim reader tragically lost his sister in a fatal car accident several weeks before. It was horrible. And to make matters worse, her ex-husband was a  Neanderthal jerk.   Jim’s sister had divorced this thug over 10 years ago. But she forgot to change her IRA beneficiary form because she didn’t understand beneficiary rules for IRAs. When she died, the ex was still named on the form. As a result, the gorilla is going to inherit the IRA money and there is nothing Jim can do about it.

What made me angry was that the ex-husband is going to make hay on this family’s tragedy. Jim’s sister would absolutely not have wanted this to happen. And what makes me sad is that this problem could have been so easily averted.

Before we get to the “how” part, I just want to clarify why updating your change of beneficiary form is so important. Hopefully, you’re not going to die for a very long time. Over that time period, things are going to change. You may want one person to inherit your IRA money now but that same person may be completely out of your life 10,20 or 30 years down the road. The last thing you want is for the wrong person to get their paws on your stash. How do you do make sure this never happens to you? That’s easy. There are 5 steps:

1. Decide Who

You can change your beneficiary as often as you change your socks. You might not be sure about the absolute perfect way to set up your beneficiaries but that’s OK. It’s just an example of good being better than perfect. If you wait for “perfect” to happen you may end up like poor Jim’s sister and have your money fall into the wrong hands. Make a decision and implement it. You can change it anytime you like.

By the way, there are tax and investment ramifications that result from your decisions here. So it’s always a good idea to consult with a qualified financial advisor, tax professional or attorney. Also, it’s important to understand that there are vast differences between your IRA beneficiary and the right person to name as your life insurance beneficiary. But if you don’t have the scratch to afford a consultation, I strongly suggest that you name someone or a number of people as beneficiaries rather than keep the form blank or have the wrong person named.

2. Get the Info

If you want to do right by your beneficiary you must fill out your change of beneficiary form correctly. And to do that you’re going to need their date of birth, address, legal name and social security number (in many cases). You may feel uncomfortable getting all this data. It’s understandable. Just keep in mind that you can tell your loved ones that you are naming them as beneficiary on your retirement account. You don’t have to mention the sum involved. You can still hold on to a great deal of privacy.

If you are interested in doing a good job for your beneficiaries, you might also want to study up on the family living trust. The trust is to your non-retirement assets as your beneficiary form is to your retirement account. Both documents are the key to your financial and estate plan. Consult with your attorney or use a self help legal service to put your living trust put in place.

 

4. Keep a copy

Banks and brokerage firms go in and out of business all the time. When these firms change hands, old documents often go missing. Always keep a copy of your beneficiary form on hand. This way, you’ll never have to rely on other people to safeguard your money.

5. Mark Your Calendar

The most important step is to go through this exercise every 2 years at the very least. Mark your calendar to do this and when the reminder comes up, just take care of it.

Completing a change of beneficiary form is simple and it’s the easiest way there is to update your financial plan and make sure that it will be put in place when the day comes.

Have you updated your beneficiary form recently?