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Posted on November 7, 2018

It is All About Your Beneficiaries as We Approach the Holidays

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Published by Scott Danek

 One of the most commonly overlooked aspects of one’s financial life is the beneficiary designations on their various accounts, be it IRAs, life insurance, or even your non-retirement investment accounts (more on this later. . .). Talking beneficiaries is not anyone’s favorite pastime, so the good news is it only takes a few minutes to possibly save your loved ones a lot of time, money, and possibly their very relationships.  The following are five tips related to your beneficiaries and why a beneficiary update is worth the time:

  1. YOU decide who gets what – If you have absent or missing beneficiary designations, the State will likely decide who gets your accounts when you are ‘done with them’. I don’t know about you, but all the time, effort, and money you’ve invested over the years should go to support YOUR family tree, not someone else’s. Proper and current beneficiary designations are the answer
  2. Don’t just stop with your Primary Beneficiary – Some will quickly complete a form and only designate a primary beneficiary and miss the ‘contingent’ or ‘secondary’ beneficiaries altogether. Granted, you hope you always make it home from the movies with your ‘sweetie’, but some simply don’t. Plan for the worst, hope for the best definitely applies to beneficiaries, so whether you have children, family, or a couple friends, list who you want to get your accounts if your primary beneficiary does not outlive you
  3. Speaking of Contingent Beneficiaries, be careful who you select – We often hear ‘Oh, my brother is a prince and he’ll be the one taking care of my kids if necessary’. He may be a prince, but unfortunately princes can get sued or divorced, and if he inherited your accounts with all the best intentions to spend that money to benefit your children he won’t get the chance if he is sued or divorced after inheriting it. Absent additional estate planning, it may be better to leave your young children as the contingent beneficiaries. Sure, they’ll have access to it when they are no longer ‘minors’, but between now and then they can’t spend it on Barbies and Match Box cars and your brother’s creditors can’t either. Additional estate planning can fix the ‘A18 access’ if that is an issue
  4. Don’t leave Uncle Sam any more than you have to – Most of us have one of our children as the closest geographically, or the most financially savvy and responsible, etc., correct? On the surface it would seem that one would make sense to leave as the beneficiary, because they could divvy up your money according to your wishes, right? Unfortunately that usually isn’t the best way. There may be gift taxes if they try to split say a $200,000 life insurance death benefit and give it to their two brothers or sisters. Or, if you leave them 100% beneficiary of your IRAs and 401(k)s they will possibly pay large amounts of income taxes as a result. Do they split the net, split the gross, split the difference. . .?! It can get really complicated really quickly and in nearly all cases will mean that your heirs get less and Uncle Sam gets more, so think twice about leaving everything to just one of your kids to split it up after you are gone
  5. You mean this non-retirement investment account can have a beneficiary too? – It is fairly common knowledge that life insurance and retirement accounts and IRAs and annuities all have beneficiaries, but what about that $10,000, $100,000, or $1,000,000 account you just invest in from accumulating money outside your retirement accounts? Usually that non-retirement account can too, provided you are able to establish the account as a TOD account, or Transfer on Death. If it is registered as a TOD account you can select beneficiaries to receive the account after your death, while retaining all the advantages of a non-retirement account while you are alive, such as control, capital gains tax treatment, liquidity, etc. Absent or at times to compliment one’s estate planning, a TOD account can be a very simple yet powerful tool to ensure your loved ones receive your non-retirement accounts as easily as they do your retirement accounts.

So, we encourage you to take a few minutes and make sure your beneficiaries are as you wish, and if you would like us to quarterback a ‘beneficiary audit’ please let us know. Either way it will be time well spent.

This article is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice.  For specific professional assistance, the services of an appropriate professional should be sought.

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