The Importance of Updated Beneficiaries
By Raymond L. Adams, CFP®, CLU, ChFC
OUTDATED BENEFICIARIES CAN BRING ADDITIONAL COMPLICATIONS, AT YOUR TIME OF DEATH
I have found that very seldom are anyone’s beneficiary designations completely up to date with their current wishes. Are you sure that if you died today your estate would be distributed exactly how you wished it to be?
TWO COMMON ERRORS IN LISTING BENEFICIARIES
1). Uncoordinated listing of people or percentages between the estate planning documents—Wills and/or Living Trust, and the financial instruments: bank accounts, brokerage accounts, life insurance policies (purchased or employer-provided), company retirement plans, IRA’s, annuities, U.S. savings bonds, etc.—can cause unfavorable and/or incorrect distributions to take place. Remember, the beneficiaries listed on financial instruments will always supersede whatever is stated in your “Will” or “Living Trust.”
Consequently, make sure each and every one of your beneficiary allocations are in line with each other, truly according to your desires—both in your documents and your financial instruments.
2). Potentially, an intended primary beneficiary might die before you do. And, without updating this beneficiary right away, or already having listed a secondary or contingent beneficiary, the deceased individual’s allocated share might not ultimately go where you would have wished it to, upon your death. My suggestion would be to make sure there are contingent beneficiaries, who are listed by name, in case this situation was to occur.
WHAT HAPPENS IF THERE IS NO LISTED BENEFICIARY BY NAME?
Almost never is this a favorable situation, but it happens frequently, and unknowingly.
Here’s why and how: The banker, stockbroker, insurance agent, or whoever is helping you when purchasing a financial product, just fills in the blanks with something like, “estate”, or “all children sharing equally,” on the first line, with the second line left blank; often this takes place without any real in-depth conversation with the individual.
The end result? When you die, there might be probate, with the usual delays and costs; or hurt feelings among family members; or maybe even litigation—due to an incorrect and unplanned for distribution, which would not have occurred with proper planning.
WHAT ABOUT UNDERAGE BENEFICIARIES?
If your death occurs while there are still underage beneficiaries—children, grandchildren, or whomever—who oversees their distribution, and for how long? Do you want them to get a lump sum distribution at the age of adulthood—as defined by the state, usually 18?
Or, what if one of your designated beneficiaries is not capable of managing finances?
Have you included legally written instructions in your estate documents, or beneficiary stipulations, to give direction if either of these circumstances were to occur?
SECOND MARRIAGE BENEFICIARY UPDATES
If you are in a second marriage, are there any changes that need to take place to your beneficiary designations? Are both of you certain that they are listed as you truly want them to be?
Does any beneficiary distribution take place after the first one’s death, or only after the second one dies? At the first death, do some beneficiary arrangements become irrevocable?
MAKE SURE IT IS THE WAY YOU WANT IT TO BE
If you want to be confident of a smooth transition of your assets taking place after you pass away, make sure all of your beneficiary arrangements are updated and properly coordinated within your various estate planning documents and financial instruments—in other words, verify that they give directions on exactly how and when you want the distributions to take place.
Additionally, I strongly suggest you consider listing the birth dates and Social Security numbers of all beneficiaries, to eliminate any possible questions of your intentions.
THE SOLUTION IS SIMPLE: LEAVE NOTHING TO CHANCE!
After a thorough review of all of your listed beneficiaries, in your estate planning documents and financial products, if your instructions are not crystal clear the problem can be easily remedied through a “beneficiary check-up”. By following through with such, and then doing all that needs to be done to remove any and all ambiguity, you can eliminate all potential incorrect distributions of your assets upon your death; and you can rest easy knowing that your estate assets will be distributed according to your desires—in the quickest, easiest, and most tax-efficient way provided by the Internal Revenue Code.
If you would like, I can help you. Simply call today for a no-obligation “beneficiary check-up”: (425) 827-9225.
Capital Enhancement Group, Inc. • 611 4th Ave. Suite A • Kirkland, WA 98033 • (425) 827-9225