Charlie
John
FINANCIALLY
Speaking
Your Life Changes … Have Your Beneficiaries ?
by Jeffrey M . Orth , CSA , ChFC , IAR
A7JC 1108-04
Over time , you have accumulated a number of financial assets in one form or another . Many of those assets will be left to your heirs through beneficiary designations , rather than through a will or trust . There is a good chance that you own at least one of the following assets :
• Life insurance ( personally owned or group )
• Annuity ( s )
• Individual Retirement Accounts ( IRAs )
• Retirement plans
• 401 ( k ) plans
One of the most common mistakes you can make with respect to your financial plan is to fail to update your beneficiary designations .
All too often I run across policies with ex-spouses as beneficiaries , or parents of a subsequently married insured as the beneficiary instead of the new spouse , or a named beneficiary that is no longer alive .
So why would this be a problem ? Let me give you a few examples :
Charlie
Charlie has three children from a previous marriage . In 1992 , he gets married to his second wife , Betty , and names her as beneficiary of his life insurance policy , 401 ( k ), and IRA . Charlie and Betty divorce in 2001 , and with all that is involved in that process , he forgets to update his beneficiary designations . When Charlie died in 2003 , Betty received all the proceeds from his life insurance , 401 ( k ) and his IRA . Charlie ’ s three children got nothing .
John
John purchased a life insurance policy in 2001 , when he first got out of college , to accumulate cash on a tax deferred basis . He was single at the time , so he named his parents as beneficiaries . In 2003 , John married Kathy , and they had their first child two years later . John died in a car accident in 2006 . Since his parents were the named beneficiaries , they received the proceeds from the life insurance policy tax-free . John ’ s parents wanted to do the “ right thing ” and passed the money on to Kathy . Because the beneficiary was never changed , Kathy needlessly paid taxes on money that she could have received tax-free .
Terry & Susan
Terry and Susan are in business together . Terry owns and is the beneficiary of a policy on her mother Susan ’ s life . This policy was used to fund their buy-sell agreement , which will allow Terry to purchase the business from Susan ’ s estate when she dies . Unfortunately , a few years later , Terry and her husband divorced , and in a nasty settlement agreement , he was awarded half of all marital assets . As it now stands , Susan ’ s ex-son-in-law now owns one-half of the policy on her life . If she were to pass away , there would be insufficient money to fund Terry ’ s purchase of the company , as outlined in the buysell agreement , and the ex-son-in-law would receive a substantial amount of life insurance money .
All of the problems illustrated in the examples above are preventable by regularly re-evaluating your current financial plan and adapting to changes that take place in your life . It is important to realize that not all financial assets should be treated the same , and all should be reviewed periodically to insure they are performing as desired . It is recommended that all life and annuity contracts , as well as 401 ( k ), IRA and retirement plans be reviewed at least every two years .
If you have purchased insurance and investment products , you have demonstrated that you care about and are planning for the future . Although people don ’ t generally plan to fail , failure to follow-up can cause a lot of unnecessary heartache for those you love . Don ’ t let your careful planning go to waste because of overlooked details . Call your financial planner today to schedule a review of the various elements of your current financial plan .