Naming a beneficiary for each retirement account is important because it allows key assets to transfer directly to your heirs if something should happen to you. Typically, if beneficiaries are named, assets can be transferred without going through the probate process. The problem is that people often name beneficiaries when they establish their accounts, and fail to update them over time.
Failing to update your beneficiaries after a life-changing event such as a divorce can create some huge financial and legal issues. For example, an ex-spouse listed as a beneficiary would be entitled to all the money in a retirement account, even if the account holder wanted the money to go to his or her children, current spouse or other family member in the event of death. There have been a number of lawsuits nationwide involving outdated beneficiaries, many of them involving people who have been married more than once.
Take a few minutes to make sure your beneficiary designations are up to date. You — and your heirs — will be glad you did.