The first of every month, I will post how to apply my blog pieces to your everyday life. It will be a mix of an ongoing checklist and financial tips for you to follow. I know you already have a thousand checklists, but just remember it will only be one thing to do a month. Hopefully by following them, it will help you stay on top of your finances.
September is Beneficiary Review Month: I know it is not nearly as exciting as getting your hair blown out at the blow out bar, but it might be the next most exciting thing on your list.
What does beneficiary review entail? To start with, you should track down your 401(k) statements, your IRA statements, your life insurance policies, any annuity statements, and any other account that has a beneficiary designation. Next, simply check the primary and contingent beneficiary designations for all of them. You may have to go online to view who the beneficiary is, but you probably have to go online anyway to update it. While some may be as simple as logging onto your account, most of them will need a form, so YAY more paperwork! I’ll go through some life or work changes that may prompt you to revisit both your beneficiary designations and your estate planning documents.
If any of your 401(k)s have changed to a different custodian, such as from Vanguard to Fidelity, you should double check your beneficiary designation. We’ve seen multiple times where a designation hasn’t transferred over. You may have even added the beneficiaries several times, but they never seem to show up on your account or statements. If this is the case, contact your HR department or the custodian to get something in writing stating who your beneficiary is. It took one widow 16 months to get her husband’s 401(k) check because her name wasn’t listed. She finally got the 401(k) check since the company had it in writing on a form, but it was at the old custodian. Unfortunately, she still had bills to pay along with her mortgage so 16 months was a long time to go without that money. Apparently the cable company won’t care if you’re waiting on a 401(k) check.
When you start having children, make sure you update all of your documents. Many couples will update the beneficiary on their accounts when they have their first child, but then they forget to add their second or third child. So what happens in this case? Does it go according to your will? Nope, only the child listed will inherit the 401(k), and trust me, you don’t want to assume they will split it with their other siblings. Nor do you want to put them in that situation.
What about if you are recently divorced? Yup, you better revisit your beneficiary designations. Now if you have updated your will post divorce, do your 401(k)s, life insurance, and IRAs go according to your will? Your IRAs and life insurance will if you live in New Jersey, so please check what your state law says. Any ERISA retirement plans, such as your 401(k), will go according to your beneficiary designation. And you probably rather the money go to a stranger before it goes to your ex-spouse, just guessing.
You can have a bank account or a non-retirement investment account with a beneficiary designation, also known as a Transfer On Death account (TOD account) or Payable On Death account (POD account). If you would like to add this to any account, ask your bank or financial advisor. They should all be able to do this for your accounts. These can come in handy if you are taking care of an elderly parent. If they pass away, the money will go directly to you to help pay any hospital or medical bills.
By having your beneficiary designations updated and filled in, your estate will most likely save time and money. Any asset or account that has a beneficiary designation bypasses probate since it goes according to the designation and not your will. Any money that transfers outside of probate is kept private and away from creditors. Leaving certain assets to your loved ones and not to your estate, will probably save on income taxes as well. Assets such as a retirement plan can be passed onto your family and kept in an Inherited IRA or a Spousal IRA. Doing so allows them to keep the money in a tax deferred vehicle versus taking all the money out and paying income taxes on all or most of it. But first you should know you must take Required Minimum Distributions each year if you roll money into an Inherited or Beneficiary IRA. As always, speak with an estate attorney and accountant to find the best way to pass on your money to your family, friends, or charities.
If you have any questions or comments, please email Jessica.Weaver@raymondjames.com or post on my Facebook page, Jessica Weaver, Wealth Advisor. We have Beneficiary Review Checklists available, so please email me if you would like one sent to you. Hope this helps to mark one item off your never ending to-do list, now time to reward yourself, my suggestion is a martini. Anything you’ve accomplished with estate planning deserves a martini!
Here is a look at the upcoming monthly topics:
October: 401(k) Re-balancing, it is last quarter of the year!
November: Year-end tax planning. What to look for or avoid.
December: Required Minimum Distributions from retirement plans, remember it’s a 50% penalty!
January: New Year, New Salary? Maybe it’s time to increase your retirement plan contribution.
Jessica Weaver, CFP®, CDFA™, CFS®
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jessica Weaver and not necessarily those of Raymond James.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™, and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing requirements.