According to estate planning professionals across the US, the COVID-19 crisis inspired many people to create a will, or if they already had one in place, to update it. This is good news, because dying without a will (intestate) can cause myriad expensive and stressful complications for your surviving loved ones—in those cases, the laws of the state where you reside will determine how your property is distributed upon your death. However, just having a will is not always enough.
Beneficiary Designations Trump Your Will
Remember: the beneficiary designations you put in place for assets like life insurance, IRAs, retirement plans, bank accounts, commercial annuities and brokerage accounts take precedence over any other form of legal documentation, including your will. It doesn’t matter which document is more recent; a beneficiary or transfer-on-death form will always hold authority, making it incredibly important to not only establish these designations, but to review them regularly.
Like your will, your beneficiary designations should be updated based on life events, including births, deaths, marriages, divorces, or other changes in family dynamics, as well as name/address changes for your loved ones. Failing to update these designations can result in your assets being distributed to someone you didn’t intend.
Other Beneficiary Options
You may also choose to name a qualified charity, like Drexel University or one of its schools and colleges, as a full or partial beneficiary of retirement assets or a life insurance policy. When naming an organization, be sure to enter its complete name, which may be different from the version by which it is commonly known. Several different organizations may use similar names—you want to be sure your bequest goes to the specific one you have in mind.
Here’s a tip: naming a qualified charity, like Drexel University or one of its schools and colleges, as a beneficiary of your retirement assets is a tax-smart move. Any individuals named as beneficiaries of the retirement account (other than your spouse) will likely have to pay income taxes on any distributions they receive. But, because qualified charities are tax-exempt, they won’t owe taxes on the withdrawal.
Keep Current
In the case of beneficiary designations, it's always the employee or investment holder who is responsible for updating them. Make it a habit to check all your estate planning documents every three to four years, including your beneficiary designations. If you are unsure how to do it, contact your employer’s human resources department or your financial institution for help.
Questions? Contact David Toll, senior associate vice president, Office of Gift Planning, at 215.895.1882 or giftplanning@drexel.edu.