Caution! Inaction Could Disinherit Your “Intended” Self-Directed IRA Beneficiaries

Now that January is past, it’s time to settle in and think about some of the more important but often forgotten items. Chief among them is your beneficiary designations. The person or entity currently slated to inherit your Self-Directed IRA account may no longer be the person you want to inherit your account. This applies to your Self-Directed IRA, accounts under employer plans such as 401(k)s, 403(b)s, profit sharing plans, pension plans, and the many assets you have worked hard to acquire. There are numerous documented cases of individuals or estates inheriting retirement accounts and assets when the owner wanted the beneficiary to be a different party. The following tips can help you to track your beneficiaries and assets:

• Maintain a beneficiary file: Create a list of all of your retirement accounts/assets and identify the named beneficiaries. If you do not already maintain all of this information in one easily accessible area, now may be a good time to start. This will help you to keep track of both your current beneficiary designations and all of your assets.
• Perform annual check-ups: Check your beneficiary forms and your Will at least once per year to determine if you need to make any changes. Events involving your beneficiaries may necessitate changes to your current named beneficiaries. For instance, you may have gotten married or divorced, and need to update your beneficiary form to add or remove your spouse or former spouse.
• Review after each life-event: If the occurrence of a life-event that could affect your beneficiary designation occurs, review and update your beneficiary forms and Will if necessary. Such events include births, deaths, and marriages. For instance, you may have named your mother as your beneficiary for your Self-Directed IRA when you started working at a younger age, but now that you are older and married, you may want your spouse to be your beneficiary. Chances are your mother would inherit your Self-Directed IRA, unless you made the necessary changes to your beneficiary designation form to name your spouse as your beneficiary.
• Obtain required signatures: If you are married and you name someone other than your spouse as a primary beneficiary of your retirement account, you may be required to obtain your spouse’s consent if your account is under an employer plan or if you live in certain states. Failure to obtain the required consent, which may require the signature of a notary or other designated person, could result in the beneficiary form being invalid.
• Tell Your Beneficiaries: Your beneficiaries could end up not receiving the assets you leave for them if they do not know that they have been named as such. To prevent this from occurring, inform your beneficiaries that they are designated to inherit your retirement accounts. While doing so, it is also recommended that you include identifying features such as the account number and the name of the financial institution or employer with which the account is held. If you prefer not to have them know before they actually inherit the account, you could either leave instructions with your legal representative or a trusted individual to provide the notification in the event of your death, or make any other suitable provisions for notification.