It is important to save and plan ahead. We all probably agree on that. When it is all said and done, “you can’t take it with you.” So who will get your money someday?
Lucky Dog
In recent years there have been stories of wealthy individuals leaving significant money, even fortunes to pets. That may not be your idea of how you want to leave a legacy, but these individuals planned well to make their desires happen. One of the more famous stories is of Leona Helmsely, a successful businesswoman who left $12 million to her dog, Trouble. There is also a story of a German countess, Karlotta Liebenstein, who in 1992 left $80 million to her German shepherd Gunther III and allowed in her legal documents for the money to pass to her dog’s offspring. With good investing by the managers, Gunther IV is now enjoying an estate of $372 million. Wow.
When you pass, your money should go to those you intend to inherit your estate, whether family, friends, charitable organizations or even a pet, if you wish. Proactive planning is required to ensure your wishes are accurately fulfilled.
6 Common Beneficiary Mistakes to Avoid
1.) Not Naming a Beneficiary or Listing your Estate. If no beneficiary is listed, it goes to probate. If you list your Estate, it goes to probate. This is completely avoidable. These mistakes would prevent your spouse or kids from being able to use what is called a “Stretch” IRA, where the beneficiary can spread payments over their lifetime; which typically reduces taxes paid and can increase the potential growth of the assets. It is almost always best to avoid Probate. Many courts will take a year or longer to finalize the estate, attorney fees will mount and there will be a delay in the beneficiaries receiving the assets.
It is almost always best to avoid Probate
2.) Not Listing a Contingent Beneficiary. What happens if you are killed in a car accident with your spouse, who typically is the Primary Beneficiary? Hello Probate Court again. You need to have Contingent or what I call “next in line” beneficiaries listed; typically these are your children (possibly grandchildren or a charitable organization if you don’t have children).
3.) Failing to Keep Forms Up-To-Date. Unfortunately, there are cases where ex-spouses have inherited accounts because beneficiary forms were not updated. As well, possibly other previous named beneficiaries have passed away or a relationship has significantly changed. If you are re-married you will want to decide how to handle your assets if you were to pass away. Your new spouse will need to sign a consent form if your assets are intended to go to your children directly. Additionally, you may need to setup a Trust if you desire for your new spouse to be supported by your assets if they survive you, and then have the money transferred to your own kids. We have seen cases where the money goes to the surviving spouses (2nd marriage) own children, not the intended biological children of the 1st spouse to pass. It can get ugly. I can refer you to great Estate Planning attorneys for these needs.
Beneficiary forms override your will
4.) Failing to List Beneficiaries On ALL Your Accounts. Does your 401k or 403b at work have listed beneficiaries, and have they been updated? Your IRAs, Roth IRAs, joint investment brokerage account(s), insurance and even your bank accounts should have beneficiaries listed. This will avoid Probate and give your beneficiaries quicker access to the assets. A Transfer on Death (TOD) can be used for joint investment accounts and a Payable of Death (POD) is used for bank accounts. Too often we see new clients and prospects come into our firm with beneficiaries listed incorrectly on their accounts.
5.) Naming a Minor as Beneficiary. It is questionable if many adults are even responsible enough to handle suddenly inheriting significant amounts of money… so how about your teenager? Although it is good to have your kids named as contingent beneficiaries it can cause problems. Financial control is often a concern- some beneficiaries will always raise concerns and/or there are often very specific wishes that someone will want carried out upon their death. This again is an example of where speaking to an attorney is wise and using a Trust can assist in this situation.
1.) Forgetting to Choose a Guardian. You’ve named the beneficiary and determined what financial control you wish to put in place and even designated who is the Trustee of the assets. But did you name a caretaker of your minor children (or the grandchildren you care for)? This is vital. Would you rather the court appoint a guardian for your kids or you choose..? I think we know the answer to that one.
So, WHO Will Get Your Money?
These mistakes are simple to avoid and it is obvious why you should take action. However, too often I find that people put off these critical and basic estate planning steps. It is also common for people to forget to update and adjust beneficiaries as life changes. This is even true for many people who are working with “financial advisors” out there. Estate planning is a critical process that our firm incorporates into our client services. If you are unsure of whom your beneficiaries are or would like to discuss some ideas, please reach out to our office.
To Your Financial Planning Success,
Luke Fields, CFP®
luke.fields@raymondjames
877.854.0936
Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.