Naming Beneficiaries: A Quick Tip to Reduce the Surprise Factor
Sometimes, surprises are fun. But nobody wants estate planning surprises, especially when it’s time for your beneficiaries to inherit your worldly goods.
Essentially, everything you own transfers in one of three ways: by title, will, or contract. When’s the last time you’ve reviewed each?
If your checking account is titled in your and your spouse’s name “with rights of survivorship” (WROS), you effectively co-own the account. If that’s what you wanted, you should be set.
Then there’s your will, which dictates the transfer of any assets that aren’ttransferred by title or contract. That’s most certainly some of your estate, so if you don’t have a will, I recommend getting one.
Now, let’s talk about beneficiary designation contracts for assets such as retirement accounts, pension plans and insurance policies. Too often, I see investors forgetting to tend to their beneficiary designations here. What happens then? Whether it’s been a long time since you’ve reviewed your designations or you never made any to begin with (in which case, state laws or contract language decide for you), the results may not reflect your current preferences.
You can usually assign percentages to your beneficiaries. For example, you can name your spouse as primary beneficiary, 100 percent; and your siblings as secondary beneficiaries, 50/50. (PS: For 401(k)s, you typically need your spouse’s signed approval to designate a different primary beneficiary.)
Some contracts let you have your funds go “per stirpes.” Say you name your three children as primary beneficiaries, 1/3 each. But, tragically, your eldest son dies with you. Should his part go to his two siblings, or to his children? If you check the “per stirpes” box, it will go to his kids.
There also are times you might name a trust as a beneficiary. If so, it’s probably time to hire a professional for additional counsel. Regardless, if it’s been a long time (or never) since you reviewed your beneficiary designations, now’s the time.
Written by John A. Frisch, CPA/PFS, CFP, AIF, PPC