INDUSTRY INSIGHT
Your Finances
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Six Costly Beneficiary
Mistakes to Avoid
T
oday at DeLallo’s Restaurant I’m joined
by my sons, Eric and Jonathan. Not
only are they the pride of my life but
like their father, they are financial advisors.
Jonathan is working on a presentation that
he will be making at an upcoming seminar.
The subject of his speech is “beneficiary
designations.” Our lunchtime discussion of
beneficiaries prompts older brother Eric to
ask me how I had my Will arranged and was
he included! Eric’s joke caused me to choke a
little on my tortellini but he sure inspired this
article.
If you’ve ever spent time working through
your estate plan with a professional, you
know how important it is to update your
beneficiaries. Failing to do so can result in
costly mistakes – for you and your loved ones.
Here are six big mistakes that can easily be
avoided with a bit of proactive planning:
Mistake #1 – Not naming a beneficiary
Ensure you have listed beneficiary
designations on all of your retirement
accounts. If you don’t name a beneficiary and
your estate becomes your beneficiary rather
than a relative or loved one, your relative can
lose the ability to use “stretch” payouts based
on his/her life expectancy. This means that
the ability to retain tax-advantaged status
for the assets is lost and the probate process
cannot be avoided.
Mistake #2 – Not listing contingent
beneficiaries or contemplating disclaimers
Your spouse or partner is likely your primary
beneficiary for most accounts, but if he or
she passes away first and no contingent
beneficiaries are listed, it’s comparable to
having no beneficiary designation. If you
both die at the same time, funds go into
probate – a process most families want to
avoid. Naming contingent beneficiaries also
gives the primary beneficiary the option
to execute a qualified disclaimer so some
assets can pass to “next-in-line” beneficiaries.
For example, a primary beneficiary may
not wish to claim the assets because of tax
implications, and prefer instead they pass on
to another beneficiary.
Mistake #3 – Lacking specifics in
beneficiary designations
You may list “children” as your beneficiaries,
but including specific names may be more
appropriate – especially if you’re part of a
blended family. Many states won’t include
or recognize stepchildren when the word
“children” is listed. Another risk of vagueness
is that a family member you’ve lost contact
with may enter the picture and try to claim
a piece of your remaining assets. Note that
listing specific names makes it even more
critical that beneficiary designations are
updated when major life events happen that
require names be added or subtracted. Also
consider consulting with a qualified legal
professional, as these circumstances can
become complex.
Mistake #4 – Failing to keep
designations up to date
Beneficiary designations override your
Will, so it’s crucial to keep them up to date.
You may need to update your beneficiary
designations every few years due to life
changes or if beneficiaries have died or your
relationship with them has changed. This
is particularly applicable if you’ve gone
through a divorce or remarried. If your
ex-spouse inadvertently remains the
designated beneficiary of an account, he
or she may have the upper hand if the
case winds up in court.
Mistake #5 – Failing to keep
beneficiary designation forms on file
Keep copies of updated beneficiary
designation forms on file. In this age of
mergers and acquisitions, the records
of an acquired custodial company can
potentially be lost or destroyed when a
new firm assumes ownership. Without
a verifiable form to prove beneficiary
status, the “default” provision of the plan
applies, which typically may be phrased
as “spouse first, if living; if not, then the
estate.”
control who gets what amount of money or
when, nor limit how money is used unless
restrictions are put in place in advance. One
restriction is naming a trust as the