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Avoid the Headache of Giving the Wrong Person Your Estate

Jacob Jaegle, CFP®
August 13, 2020

Once a year you do a deep dive into your investment portfolio by going through the quantitative data (the “hard numbers”) and qualitative information (the “soft stuff”).  You spend time learning which parts of the portfolio added to your returns and which ones did not.  You update and review the projections to make sure your portfolio will meet your needs and objectives.  You will discuss potential updates to your estate plan, review your tax situation, and confirm the beneficiaries of the account.  When all is said and done, you agree that either everything is in good order or that it may need a slight update or correction.  The review, financial plan, and projections then sit on the shelf for the next 12 months waiting for next year’s update.  That’s where it ends…

In theory.

This story is one that I’ve heard all too often through my career in financial services.  “I looked at my statement last quarter and all seems to be well” or “I just met with my other guy and they didn’t make any changes to my account.”  

The regular review may lack completeness when you consider all of your accounts.  I’ve recently met with a client whose son passed away and his ex-spouse was named on the old 401(k) account.  (No, he didn’t do the regular review on all of his accounts.) Another client of mine passed away but hadn’t updated his trusts since they were created in 2001.  The beneficiaries of these trusts were all in their late 50’s and 60’s and no longer required trusts.  Lastly, (and this may be the worst) it pains me greatly to see clients pay for a full estate plan, including a will and trust, but then fail to actually fund the trust.  To prevent this, if you’re using a trust, please ask your estate attorney which accounts need to be updated to reflect the name of the trust.  In all of these scenarios, the beneficiaries were able to correct the errors; however the corrections required legal intervention, which costs money and takes time.


Here are four easy steps you can take to ensure your wealth goes to your heirs of choice:

1: Review and update your beneficiaries at least every year

Every bank account.

Every investment account.

Every retirement account, including 401(k)s and IRAs.

Pension plans.

Annuities.

Long term care policies.

Life insurance policies.

To make this process easier, create a list that includes all of the above accounts and policies and make it an annual process to verify the beneficiaries on each account.  Although logging in online or making a phone call to confirm the active beneficiaries can feel like a daunting task, remember it’s much easier to handle the changes and updates while you’re still around than having someone else attempt to change them after you are gone.  In a vast majority of reviews, you likely won’t have any updates to make.  Getting into the habit of checking on the beneficiaries will help ensure that the monies go to the right place upon your demise.  Personally, I think it makes great sense to make this an annual April project.  It’s easy for me to remember “tax time is beneficiary time”.

2: Do it yourself

Although you may use a financial power of attorney to handle your affairs, in a number of cases, if the Power of Attorney is trying to make changes on an account that names them as the beneficiary, their request may be denied.  Financial Institutions, like the Power of Attorney themselves, have a duty to protect their clients and the institution from abuse.  One way they manage that risk is by limiting the POA’s ability to change their beneficiary allotment, even if it is the intention of the client.  If you have a POA and are of sound capacity, it makes sense to handle the updates on your own.

3: Consult your Estate Attorney

You visit with your estate attorney to draft your estate plan itself, so doesn’t it make sense to revisit with the attorney to make sure all the pieces still fit together?  Your estate attorney will be able to give you the best guidance on how to name the beneficiaries on your account so that everyone receives what you plan to give them.  I know estate attorneys that like to use revocable trusts because the accounts may be owned by the trust which may remove the need to name separate beneficiaries.  When this happens, the only amendment necessary would be to update the language in the trust.  The trust may also be the beneficiary of retirement accounts, but if they are, make sure the trust language includes “See Through Provisions”.  Please note that this situation may be very tricky and would need the legal review of the estate attorney.

4: Consolidate your accounts

If you have a lot of accounts in the periphery, this may be a wonderful opportunity to consolidate your accounts.  Consolidating accounts has many benefits, such as reducing fees, reducing redundancies, and reducing the number of annual portfolio reviews, but a large and often overlooked benefit is reducing the errors of beneficiary designations.  Error in beneficiary designations and lack of trust funding are the two of the largest (and most easily corrected) errors that I’ve seen.  If you do have numerous accounts and wonder how consolidating may help you, please call your advisor at your earliest convenience.

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While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

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