Do You Know Who Your Beneficiaries Are?
by Christine Van Meter, M.B.A.
Happy families are all alike; every unhappy family is unhappy in its own way. Leo Tolstoy.
Once upon a time in America, the majority of wealth passed from generation to generation by means of wills and probate courts. Today, however, more and more of our wealth is passing to our heirs by means of the provisions to name beneficiaries on certain types of investment accounts, such as 401Ks, 403Bs, IRAs and some kinds of annuity contracts. The benefits of using named beneficiaries are many, and include avoiding the time and costs associated with probate. However, precisely because it is such a targeted means of passing on your assets, you need to be certain that the beneficiaries you may have named in the past reflect your current situation and intentions. For this reason, we at Van Meter & Van Meter LLC strongly recommend that you review your beneficiaries at least annually, and also whenever there are significant changes in your life.
Real People Have Real Problems
We are all real people living real lives in the real and sometimes harsh world. Some of our families seem to have more than our fair share of problems, such as children with addictions, in-laws who do not share your values, divorce, and more. Each of these situations should probably cause a beneficiary review when they arise.
There are a few tricky details about establishing and changing named beneficiaries that you might not know:
- Many financial services providers will not accept a beneficiary change from a power of attorney.
- Most financial services providers now require that you provide identifying information about your beneficiaries, to include their social security number, birthday and current address.
- Assets with high deferred taxes, such as IRAs and annuities, are often better left to individuals than to estates or trusts.
- Some companies use default beneficiary designations unless you specify otherwise; i.e., your current spouse as opposed to your former-spouse.
- Assess whether the intentions you express in your will are contradicted by the effect of naming your beneficiaries on your financial accounts.
A Matter of Fairness
A thorough beneficiary review is also a tool for ensuring basic fairness and preventing hard feelings. Careless or haphazard naming of different beneficiaries on different accounts may unintentionally result in uneven distribution of assets. There have been some instances where beneficiaries named in wills, in cases where the majority of assets passed outside the estate, have been dissatisfied and even sued to recover what they consider to be their fair share.
You should think twice about naming minors as beneficiaries, given that the courts may appoint a guardian over the funds until the beneficiary reaches the age of majority, and even then some youth may be reckless spenders.
You should never leave assets to a disabled child or adult without consulting a lawyer; such situations often call for the creation of a supplemental needs trust in order to preserve the ability of the affected individual to receive needs-based government benefits.
As always, we suggest that you consult with your financial and legal advisors to help you work through the benefits and potential problems of naming beneficiaries of your financial accounts.