Client Question: Beneficiary Updates

February 1, 2024

If you are a loyal reader of this weekly column, you are keenly aware of just how much there is to know and remember when it comes to your financial journey. The minute you think you’re caught up, you learn of another task you need to address! On this week’s list of things you need to take care of – reviewing (and potentially updating) your beneficiaries – a task that is top of mind as I helped a few clients complete it in recent weeks.

Let’s start at the beginning. A beneficiary is a person legally designated to receive property from another person upon their passing. Certain assets you may own- such as retirement accounts (401k plans, IRAs, Roth IRAs, pensions, etc) legally require you to list a beneficiary, as do life insurance policies. You will be asked to name a primary beneficiary (you can name more than one and select %). These are the people first in line to collect the assets. You will also be asked for contingent beneficiaries – who will receive the assets if the primary beneficiaries are no longer alive when the time comes.

For many of the other assets you own (such as bank accounts, your home, after-tax brokerage accounts), you will not be asked or required to make a designation- but please note that you are still allowed to in most instances and should take this step for as many assets as you can. (If you have a trust, you have other options such as titling the assets directly in the name of the trust. Please work with your attorney and financial advisor for your specific fact pattern).

This is important – even if you have done careful estate planning to ensure your beneficiaries listed on your specific assets to reflect those wishes and documents. For instance, if you have a trust in place but do not have your trust listed as the beneficiary on your life insurance policy, those proceeds will NOT be paid to your trust upon your death. If your will says your IRAs should be split 50/50 between your children but your beneficiary designation on the IRA only lists your spouse as the beneficiary, the custodian of your IRA will have no choice but to distribute it to your spouse as that is the instructions they have on file. You should take the time to make sure beneficiaries are consistent with estate planning documents (and your current wishes)

As you can see, carefully reviewing beneficiaries and ensuring they are all properly in place and in line with your current wishes is an essential task. If you are a Windermere client, we will be reviewing this with you during the course of the year – just to double and triple check everything is in good order!

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