Over the years I’ve been a financial advisor, I’ve told clients that there are some things that I can’t control (i.e. stock market performance), and there are others that I can control. One of the most basic things that I can control is often overlooked – properly naming your beneficiaries. On the surface, this sounds simple. All you have to do is list the names of the people whom you want your money to go to prior to your passing away right? If it’s this simple, how are people inadvertently disinheriting their loved ones and having the money go to the wrong people?
- Failing to change beneficiaries on ALL accounts. Oftentimes when we change jobs, we get so wrapped up and focused on the new job that we tend to forget about our old 401k. In fact, many people tend to leave their 401k with their old employer, claiming that they’ll deal with it “later”. Unfortunately, in many cases, “later” gets pushed back further and further until they are one day forced to review the beneficiaries. Here’s an example: In one of my meetings with a new client, I reviewed his old employer’s 401k. I didn’t recognize the name of the person listed, so I asked him who that person was. In shock, he answered, “That’s two ex-girlfriends ago. We need to change that to my wife!” Eventually we did, but if we hadn’t made the change, the ex-girlfriend, rather than the wife, would have gotten the money had my client passed away. A general rule of thumb to prevent this from happening is whenever you have a life event (i.e. marriage, death, divorce, children, change of employment), review the beneficiaries on all of your accounts.
- Listing beneficiaries incorrectly. Surprisingly, this happens more often than you’d think. One way it can be done is the account owner just sees the words “beneficiary information” and mistakenly titles everyone as a primary beneficiary (vs. the intent was to list one person as a primary beneficiary and the remaining people as contingent beneficiaries). Another common error is when the beneficiary form doesn’t have enough space to list all of the names of the beneficiaries (i.e. it only has space for two entries when you really have three intended beneficiaries). A financially astute person would normally include a separate sheet to list the beneficiaries that they weren’t able to add on the form, but a person who’s not as financially savvy may list as many people as the form allows and assume that the listed beneficiaries will pass the money along to the people who weren’t listed.
- Not listing beneficiaries as “per stirpes” (rather than “per capita”). What many people don’t know is that unless you specifically designate a beneficiary per stirpes, you are more than likely designating that beneficiary per capita. Here’s an example of why this is important and where things can go wrong: Let’s say the Smith family has one son (John) and one daughter (Jane). Both children are married and both of them have children. Mr. Smith lists both John and Jane at 50% each and does not designate the beneficiary to be per stirpes (and therefore is per capita). John dies prior to his father (Mr. Smith), so when Mr. Smith dies, the money is not equally split between John’s family and Jane’s – Jane gets all of the money because she is still alive. Had Mr. Smith listed both John and Jane at 50% per stirpes, even though John had died prior to his father, John’s kids would get his 50%, and Jane (who’s still alive) would get the other 50%.
Proper beneficiary planning can alleviate and even avoid unnecessary problems for your loved ones. It can be complex at times, but it doesn’t have to be. For assistance with this or if you have any questions, email me or call me at (949) 221-8105 ext 2128.
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at firstname.lastname@example.org.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial. LPL does not render legal advice. Please consult a legal professional prior to taking action.