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Preserving Your Family Legacy – Part I

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How to Properly Designate and Update Beneficiaries

By Kay Anderson, CFP®


Having an up-to-date will and legal documents is an essential part of your legacy plan; however, these documents alone may not be enough to ensure that your assets are transferred to future generations in a manner that is consistent with your wishes.


Whenever you open a new account, you should ask yourself, “What will happen to this account if I pass away?”. In some cases, you may find the default option to be surprising.



Name that Beneficiary!

For retirement accounts, insurance policies and annuities, you always have the ability to specifically designate who will receive these assets in the event of your death.


Most custodians allow you to elect multiple primary and contingent beneficiaries, and you can often select what percentage of the assets are to be passed on to each beneficiary. These elections will override the provisions of your will.


Failing to appoint beneficiaries can be a costly mistake. If no beneficiaries are named, the custodian that houses your assets will follow their default rules to determine how your money is handled upon your death. Some will default to a surviving spouse, while others may follow the instructions of the account holder’s will and estate plan or simply name your estate as beneficiary. Why leave it up to a custodian to determine how to handle your legacy?


Naming a single beneficiary on an account could also lead to unwelcome consequences. For instance, if your account lists only your spouse as the primary beneficiary but has no contingents, what would happen if you both were to die in an accident? The process will depend on how the death occurs and who is deemed to pass first.


As an example, if your spouse is deemed to die after you, then the assets will flow according to their will and probate. In cases where you are in a first marriage and both spouses have same beneficiary wishes, this could work out fine; but what if that is not the case? It is important to consider your family dynamics and to ensure that your legacy wishes are specifically detailed.


Once you have established an account and listed your desired beneficiaries, you must not “set it and forget it.” Rather, you should review your elections on all accounts every 2-3 years and immediately following any significant life event, whether it be family-related or financial.


Accounts with up-to-date beneficiary designations can also provide you with an added benefit: simplifying the probate process. Although probate is a necessary component of estate settlement, it can be an expensive and time-intensive ordeal.


By selecting beneficiaries for your accounts in advance, these assets can bypass the probate process. In contrast, any holdings that are settled through your will (or lack a specific designation) are subject to the probate process.


Two other key factors to contemplate for your financial accounts are (1) establishing POD/TOD provisions and (2) understanding the difference between per capita and per stirpes beneficiaries.


A payable-on-death (POD) designation can be added to a bank account or CD to allow the money in that account to be inherited by a beneficiary immediately upon your death. The appointed person does not have control over these assets during your lifetime.


Similar to a POD, a transfer-on-death (TOD) designation serves the same purpose for an individually owned brokerage account or other investment that you wish to pass directly to a beneficiary. In both cases, taking this simple step will allow the accounts to bypass probate court.


Finally, when designating beneficiaries, you can stipulate either per capita or per stirpes as the path of succession for your assets. The distinction here is essential.


Per capita means that equal weighting is given to each surviving beneficiary. For example, if you have three children and one predeceases, then the inheritance that was granted to the deceased beneficiary will be evenly split between your two surviving children. If your deceased child had any descendants, they would not receive a share of the inheritance.


Per stirpes continues your inheritance along the family line. In the previous example where you have three children and one predeceases, the deceased beneficiary’s portion – 1/3 of the total inheritance – would be passed along and evenly split among that deceased child’s descendants (i.e. not split between your two surviving children).



Family Dynamics – Questions to Ponder

Every family situation is unique and often involves constant change – divorce/second marriages, new children and grandchildren, and much more.


For this reason, it is critical to regularly review and update your accounts to ensure that your vision for the succession of your assets is executed as desired.


Here is a list of considerations that can easily be overlooked as your family dynamics shift over time:


Spousal Considerations

If you are divorced, is your ex-spouse still listed as your primary beneficiary?

If your spouse is deceased, have you removed them as primary beneficiary? Have you designated a contingent beneficiary?


Considerations for Stepchildren and Adopted Children

Are you in a second marriage and have children from your prior marriage and/or new marriage?

Do you have stepchildren or adopted children?

What is your intent for the assets – keeping money within the blood line or including other family members?


Note: The legal nature of your relationship with a child/grandchild will drive how a beneficiary designation is viewed.  Stating “my children, per stirpes” as your account beneficiaries, for example, would not include stepchildren unless this provision is formally adopted.


Additional Considerations

Do you have a child who is under 18, has a learning disability or other mental disorder, struggles with drug or alcohol issues, or simply cannot handle money?

What will they do with an influx of cash/assets without restrictions or guidance?

Have you considered establishing a special needs trust or guardianship to accommodate these circumstances?



Above all, it is essential to have proper documentation for all of your financial accounts and beneficiary designations. We recommend maintaining and organizing all of this information within one easy-to-access file, along with verified date stamps.


Our CAS team can facilitate this process on your behalf – compiling your account and beneficiary listings for your annual review and suggesting updates when appropriate. If it’s been a while since you have reviewed your accounts, we always welcome the opportunity to discuss your legacy plan.


Together, we can ensure that your beneficiary designations align with your current family circumstances and your vision for the future – empowering you to preserve wealth for generations to come.


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