The Importance of Updating Wills, Retirement Account Beneficiaries, and Life Insurance Policies

By Natalie Solotoff, Tax Senior Manager
April 2012

Do You Want to Give $1,000,000 to Your Ex-spouse?

Neglecting to update your will, retirement account beneficiaries, and life insurance policies when major life changes occur can lead to unwanted outcomes.  Imagine a situation where an individual’s ex-wife receives millions of dollars from a life insurance policy while his new family receives nothing, simply because he never reviewed and updated his policy. 

To avoid unwanted worst-case scenarios, it is good practice to review these documents on a regular, periodic basis.  For example, if it has been three to five years since you last updated your will, it makes sense to review the document to ensure that it addresses your current circumstances, and that what you want to happen with your estate will be carried out according to your current wishes. 

It is particularly important to review your will, retirement account beneficiaries and life insurance policies when major life changes occur.  Life changes include marriage, divorce, the birth of a child, a dependent beginning their college career, purchase of a new home, moving to a new state, death of a beneficiary, significant change in financial status through inheritance or career change, law changes, and other similar situations.

Updating your will is not a difficult task; however, it is not merely a matter of jotting handwritten changes to the document itself.  Doing so can actually invalidate your will.  A better option is to make an appointment with your lawyer to go over the document with you so that he or she can make changes in the appropriate manner. 

Revising the beneficiary designations for your retirement accounts is a straightforward process, yet it is something many of us forget should be updated periodically.  There are many reasons to review your beneficiary designations on a regular basis, including many of the major life changes listed above.  If you originally named a charity as the beneficiary of your retirement account, for example, and the charity no longer exists, where your money goes may be determined by federal law, state law, or the plan documents that governs your retirement accounts—not necessarily what you would want to have happen. 

Life insurance policies should also be updated on a regular basis to ensure that you are taking into account your most current financial circumstances and that the beneficiaries of your policies are up-to-date.  Life insurance coverage should typically include college education costs for each of your children.  Moreover, if you’ve purchased a new home recently, the cost of ongoing mortgage obligations and home maintenance should also be included. 

Now that your taxes have been taken care of for the year, it is a good time to sit down and review other important personal documentation such as your will, retirement plans, and life insurance policies.  If you have any questions about the tax implications of any of the above, please contact us.


Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.  If you would like to discuss these matters further, please call Natalie Solotoff or your BNN professional at 1-800-244-7444.

IRS CIRCULAR 230 DISCLOSURE:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.  Please contact us if you wish to have formal written advice on this matter.