Why Updating Your Financial Forms is So Important

The reason updating your financial forms is so important is best explained by way of example.

A couple of years back there was a gentleman who, before he died of cancer, make sure that the balance of his retirement funds would go to his children by working with financial advisors and his attorney.

The gentleman however, unfortunately, made a mistake on his IRA beneficiary form. Where he should have specifically listed his children’s names and the percentage of money he was designating each of them, he simply wrote “to be distributed pursuant to my last will and testament”.

Since the form was filled out incorrectly, the man’s surviving spouse (who had married him just two months before his death) became the sole beneficiary of all of his money by default, all $400,000 of it, and his children got nothing.

The problem in this case was that the gentleman had forgotten to update his beneficiary forms, which likely would have led to the discovery that they were filled out incorrectly. Oftentimes this happens when people have major life changes.

It’s important to note that the designation on your IRA outranks any stipulations in your will. The reason is that your estate is actually governed separately from any beneficiary accounts like retirement accounts, bank accounts, CDs, stocks, bonds, mutual funds, insurance policies and annuity contracts.

It’s also vitally important to remember that there are no automatic reminders to update these forms, and thus you need to somehow remind yourself to do it regularly. The tips below can help you to do that.

First, you should set aside a regular time at least once a year to update any beneficiary forms that might have. Since they override your will 99% of the time, it’s vitally important to keep them up-to-date and make sure that they don’t contradict other beneficiary forms.

It’s also important that you designate specific percentages for your beneficiaries. If you want your beneficiaries to get the same amount, you can write “in equal shares” on the form. If you want to make sure that the descendants of your beneficiaries get the funds, then you should write the term “per stirpes” which means “bloodline” in Latin.

If a bank that you’re using changes its name or merges with another bank, you should definitely fill out new forms to make sure that the new bank’s name is on your new forms. In many cases forms with the name of the old bank will be invalid and, unfortunately, most banks won’t bend over backwards to tell you.

You should also have an emergency file in your home where you keep hard copies of all of your beneficiary forms. This should include forms like your “payable on death” and “transfer on death” forms. This should be done even if you have all of your forms online. Simply print them out and keep hardcopies at home.

Finally, you may wish to hire a certified estate planner as, simply put, many financial planners and attorneys don’t know the laws well enough to avoid making mistakes when filling out these vitally important documents.

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