Once you become a millionaire, you'll have to decide who'll get your money when you die. But even if you don't really want to think about your ultimate demise, do you really want your broker or fund company deciding who'll inherit your assets?

That's exactly what some Vanguard customers discovered a few months ago, when they got a letter saying that the company would no longer allow them to name different beneficiaries for multiple IRA accounts of the same type. If you already had different people named as beneficiaries, then Vanguard would automatically change your beneficiary to whomever you named most recently.

Why it's important
Vanguard's actions got a lot of estate-planning professionals upset, in part because automatic beneficiary changes could potentially ruin much of an estate plan. Although wills determine who inherits most of a person's estate, some assets -- including life insurance policies, college savings plans, and retirement accounts -- require you to make beneficiary designations to decide who gets them.

According to an article in Forbes, Vanguard claims that the new policy will avoid conflicts among family members. Consider, for example, someone with two kids who set up a separate IRA for each one, each containing $100,000 at the end of 2006. One IRA is invested in Vanguard's actively managed Growth Equity Fund, while the other owns shares of the similar Growth Index Fund.

As it turns out, the actively managed fund did better in 2007, thanks to outperformance during the early part of the year from tech stocks Google (Nasdaq: GOOG) and Apple (Nasdaq: AAPL). The annual report also credits investments in Intuitive Surgical (Nasdaq: ISRG) and pharmaceutical company Shire (Nasdaq: SHPGY) for boosting returns. As a result, the IRA with this fund would have been worth about $10,000 more than the IRA with the index fund.

Dispute resolution ... at a price
Vanguard is now saying is that the child who got the short end of the stick could say that the designations unintentionally led to unequal distributions. The new policy would encourage a beneficiary designation giving half of each IRA to each child, creating an equal distribution and avoiding conflict.

Yet there are situations in which you don't want the same beneficiaries on all your accounts. Leaving IRAs to charity is a popular estate-planning technique, but it's much easier to do by setting up a separate IRA account than by naming the charity as a part-beneficiary of all your retirement accounts. In addition, making common-sense changes to beneficiary designations, without being aware of the tax ramifications of such changes, can cost your beneficiaries valuable tax benefits.

Check your designations
The beginning of the year is a perfect time to look at all of your accounts. Here are some quick tips:

  • Don't let old accounts slip through the cracks. For example, if you've got a 401(k) at a former employer that you never rolled over, you may have named beneficiaries that are long out-of-date. You can either change the beneficiaries through your ex-employer, or move the assets into your current 401(k) or an IRA account that has the right beneficiaries.
  • Remember POD/TOD accounts. In addition to life insurance and retirement accounts, you may have named beneficiaries by using payable-on-death or transfer-on-death provisions -- they're especially popular for bank accounts.
  • Consider a trust. If you have young children, you may not want to leave them a ton of money for them to spend as they wish. Naming a trust as beneficiary can be perfect in such cases, but you have to be careful to set it up in a way that lets your kids maximize their tax advantages.

Finally, don't let your broker or fund company have the final word on how you plan your estate. If your provider won't follow your instructions, make a change and find one that will. You deserve to keep control of who'll inherit your assets.

See these articles to learn more about

To learn more about IRA laws new and old, check out the Fool's IRA Center.

For more about using beneficiary designations to achieve your financial goals, check out our Motley Fool Rule Your Retirement newsletter. Our experts give you the low-down on what you need to know to set up your accounts just right. You can try the service free for 30 days with no obligation.

Fool contributor Dan Caplinger has accounts at Vanguard, although he isn't thrilled about its IRA beneficiary policy. He doesn't own shares of the companies mentioned in this article. Intuitive Surgical is a Rule Breakers recommendation. The Fool's disclosure policy won't disinherit you.