Beneficiaries

It can be hard to imagine outliving people you expect to pre-decease, especially if you’re a parent.  The possibility that you might outlive a child can be unthinkable, but you'd be surprised how many times the unthinkable actually occurs. 

The recent death of Debbie Reynolds only a day after the death of her daughter, Carrie Fisher, offers a perfect opportunity to illustrate the importance of having plans in place for things that aren’t supposed to happen.  As a financial advisor, it’s interesting to think about who might inherit both of their fortunes if their wills didn’t take such an unlikely event into consideration.

While beneficiaries are not terribly complicated, even the slightest misunderstanding can have dramatic effects on what happens to your money when you die.  It’s important to ask yourself the improbable “what if” questions and specify exactly what you would want to happen in such scenarios.

Here are five critical things to know about designating beneficiaries:

1- You need to name contingent beneficiaries in case something unexpected happens to your primary beneficiaries.  Your primary beneficiaries are your “first choices” as to who should receive a share of your funds upon your death.  Contingent beneficiaries are the alternate persons you would want to receive the shares if your primaries did not survive you.

2- You need to specify how shares should be distributed if a primary beneficiary dies first.  If you have multiple primary beneficiaries and one dies before you do, your funds will be divided equally among the other primaries unless you specify otherwise.  If that is not what you want, you can choose to have the funds distributed per stirpes so the children of the deceased beneficiary divide the share the parent would have inherited.  There are other ways you may choose to handle such a situation, which brings us to our next point.

3- You need to explain what you want to your attorney and make sure you fully understand his/her recommendations when creating your estate documents.  There can be nuances to naming beneficiaries that affect how your estate documents are worded.  Even a slight misunderstanding on your part can result in your true wishes not being carried out upon your death.

4- You should review your beneficiary designations periodically, especially as major life changes occur, such as the birth of a child or grandchild or the marriage or death of a family member.  Beneficiaries are not something you want to “set and forget.”

5- You must have someone who understands all aspects of your financial plan involved in the estate planning process.  It's not unheard of that an attorney, an insurance agent, and a financial advisor who aren't coordinating together make beneficiary recommendations that don't work together in a client’s total financial picture.  Make sure one hand knows what the other is doing so the end results fulfill your wishes for your loved ones.

-Jay McGowan-