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Beneficiaries - A Fun Topic At The BBQ

Rizek Housari, CPA, CFP®

AUTHORS NOTE

Creating a custom financial model of your future gives you the framework and lens to make important financial decisions.

How to best plan your estate is just one of the important decisions to consider.

At Divergent Wealth we are state-of-the-art financial planners and investment professionals who specialize in simplifying complicated things.

To create a complimentary customized financial plan, call us at 385-CFP-4000. For information, visit us at www.divergentwealth.com.

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Looking for another conversation starter at the BBQ this summer? Let's chat about a fun summertime topic. Beneficiaries. 😏

Wait a minute. Stay with me. This is something you will want to do. Take a few minutes and make sure you have beneficiary designations named, especially for your financial accounts. I am talking about your bank accounts, life insurance, 401k plan at work, you get the picture.

Why is naming a beneficiary important? Well there are numerous reasons, but let me just highlight a few:

  • You can transfer assets directly to a beneficiary and avoid forcing those assets through probate. You know how much I like probate. 😅
    • Probate is the costly, frustrating, and typically lengthy process of getting the court/judge involved in administering your affairs after you pass away. It's not fun for those you leave behind. A trust and other estate planning documents can also help to prevent probate, but we can talk about that another day.
  • You can easily/quickly direct your affairs today without having to change your will. Beneficiary designations are referred to as "will substitutes" because the individual or entity that you name as the beneficiary gets the assets, regardless of what your will says. 
    • For example, if you named your spouse as heir to your bank account in your will, but named your sister as beneficiary with the bank, your sister gets the money. End of story.
    • Here is another common problem I see. Your sister separates or gets divorced from that loser, but does not change her beneficiary designation on her retirement accounts, bank accounts, HSA, etc. The worst happens, and now all those assets go to the loser, instead of directly to your niece and nephew.
      • Let your sister know at the BBQ this summer. It takes 10 minutes. 
  • Legal/Latin terms
    • Often, your financial institution will have a section where you can mark how you want assets dispersed if someone predeceases you. Let me set the stage with a simple example. Let's say you have 3 children, Trout, Bass, and Tuna. 🐟 You designated these beneficiaries to receive 1/3rd each. Let's assume Trout dies before you. 😢
      • Under Per Capita, Trout's 1/3rd share is split equally between Bass and Tuna. So they each get 1/2.
      • Under Per Stirpes, Trout's 1/3rd share is given to her two children, Rainbow and Brown. So Rainbow gets 1/6th, Brown gets 1/6th, Bass gets 1/3rd, and Tuna gets 1/3rd.
  • Transfer on Death (TOD) and Pay on Death (POD) are the terms used to describe beneficiary designations for non-retirement accounts. If you are updating a bank account, this is likely what you will be looking for.

Now if that is not BBQ conversation material, I don't know what is.

Updating beneficiaries can be done online with many institutions and typically takes a few moments to get some of your affairs in order. I am talking under 10 minutes.

We have just skimmed the surface when it comes to talking about beneficiaries. Let me highlight a few critical mistakes that I see:

  • Ignoring special circumstances (i.e. young children, addiction, divorce, maturity, government benefits, tax strategies)
  • Not reviewing beneficiary choices with legal and financial advisors
  • No beneficiary is listed at all
  • Incorrect spelling or getting the name wrong
  • Naming a trust incorrectly or inappropriately (this can cause a major headache down the road for the trustees/heirs).

The point is estate planning can be complex, but it doesn't have to be. There are simple steps you can do today to move the needle in the right direction. Beneficiary designations can be a good place to start.

I am passionate about estate planning. Can you tell? So if you have a family member or close friend that has some questions, I am happy to chat with them for a few minutes and help point them in the right direction.

I bet you are just dying to invite me to your family's BBQ now. 😁 HAHA!

Rizek Housari, CPA, CFP®


Creating a custom financial model of your future gives you the framework and lens to make important financial and estate planning decisions. At DivergentWealth® we are state-of-the-art financial planners and investment professionals who specialize in simplifying complicated things. To create a customized complimentary financial plan, call us at 385-CFP-4000. For information, visit us at www.divergentwealth.com.

The SCT Library’s mission is to cut through the clutter and the spin to deliver financial straight talk -- to simplify complicated things. These short guides will reduce complex topics to their core issues to assist in making the best financial decisions for your family.

DIVERGENTWEALTH® is changing the way people engage with advisors. They are a competent, dedicated, and credentialed financial partner should you ever decide that’s what you need. Experience the difference at www.divergentwealth.com or call to interview us at 385.CFP.4000.


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