How Not to Leave Money to Your Ex

Rande Spiegelman
CPA, CFP®, Vice President of Financial Planning, Schwab Center for Financial Research

It actually happens. People die and inadvertently leave sizable portions of their estates to ex-wives or ex-husbands, or to people they haven't seen for 30 years. Such miscues may seem unbelievable, but it's easy to let them happen. And it's easy to make sure they don't.

Like many people, you've probably managed to collect quite a few retirement accounts and insurance policies of one sort or another over the course of your life, including at least some of those listed below.

• Pension plan accounts
• 401(k), 403(b) or 457 plan accounts
• Self-employed QRP/Keogh plan accounts
• Individual retirement accounts (IRAs)
• Credit union plan accounts
• Disability insurance policies
• Life insurance policies
• Annuities

Like many people, you may have three or four IRAs, several life insurance policies and money in more than one former or current employer's retirement plan.

Do you know who your beneficiaries are?
Here's an estate-planning exercise for you: Write down all the retirement accounts and insurance policies you currently have. Then list the beneficiaries—the person or persons designated to receive the assets or proceeds in the event of your death—for each.

Were you able to do it? If not, you're hardly alone. And if you did list at least one beneficiary for each account, are you 100% certain that theirs is the name on the account document or policy?

A fundamental component of good estate planning is to make sure you've named beneficiaries for each of your retirement plan accounts and insurance policies, and to make sure you have the correct names listed for each.

It may not matter what your will says
Perhaps you think that because your will is up-to-date, it doesn't matter who is named as beneficiary on your individual retirement accounts and insurance policies. Don't count on it. A will has to go through the probate process. But retirement plan assets and insurance benefits generally go directly and immediately to named beneficiaries. By the time your will clears probate, it's a good bet that these assets will have already been distributed.

Review accounts and policies regularly
If you don't want your money and benefits to fall into the wrong hands, the solution is simple—review all your insurance policy and retirement plan beneficiaries on a regular basis. Under normal circumstances, a complete review every year or two should be sufficient, but you'll want to make sure you conduct a special review any time a major life event occurs, including:

• Marriage
• Divorce
• Birth of a child
• Loss of a spouse (or death of any other known beneficiary)
• Loss of a parent or someone else who has depended upon you financially
• Change in your state of residence

Changing beneficiaries is easy
If you want to change beneficiaries on one or more of your retirement accounts or insurance policies, here's what to do:

• IRAs: Request a beneficiary change form from the financial institution—brokerage, mutual fund company, bank or credit union—where the account is maintained.
• 401(k), 403(b), 457 and pension accounts: Contact your employer's (or former employer's) benefits department. QRP/Keogh plans: Consult your plan administrator. Insurance policies and annuities: Contact the issuing insurance company to obtain a beneficiary change form.401(k), 403(b), 457 and pension accounts: Contact your employer's (or former employer's) benefits department.
• QRP/Keogh plans: Consult your plan administrator.
• Insurance policies and annuities: Contact the issuing insurance company to obtain a beneficiary change form.

It's important to make changes to beneficiaries in writing. Once you've signed a beneficiary change document, send it to the appropriate institution or company. Once the change is executed, be sure to get a copy of your policy or account for your records. As a safeguard—and to facilitate future reviews—keep this copy with your financial records.

Regularly reviewing your beneficiary designations—and changing them where appropriate—is a relatively simple exercise that can make a big difference to your loved ones in the event of your death.