Issue 5.16
Take a moment to think about this: Are your beneficiaries in order?
It’s far too common for people to sit down and designate their beneficiaries in their wills, trusts, insurances and/or investments, and never give it another thought. With that one-and-done mentality, you may find your legacy isn’t what you meant it to be.
Life happens. People get married, divorced, have children, lose children, pass away, become ill, etc. If you don’t review your beneficiary designations regularly, you may find your assets are going to the wrong people or organizations now.
I recently had an experience with a wonderful woman who had an unfortunate story to share. She and her husband had several retirement accounts and were thriving financially in their retirement.
They’d been retired over 10 years when her husband became seriously ill. Knowing he wouldn’t be around much longer, they called their financial advisor to make sure everything was set up correctly. The advisor, without taking the necessary time to double-check, told them everything was fine.
When her husband passed away, she was informed of a discrepancy with their largest account – her late husband’s IRA. Under the law, if you inherit your spouse’s IRA, there is no tax due at the time of a spousal rollover. However, she would be responsible for continuing the Required Minimum Distributions (RMDs).
The problem with the account was she wasn’t the designated beneficiary. The IRA had been left to their two children. So instead of the money being transferred to her tax-free, it had been given to her children in two lump sums minus the tax due on the IRA account.
Upon realizing the mistake, she spoke to her children, informing them the money had been meant for her and there was a mistake in the beneficiary designation. Her son turned over the entirety of the money, minus the tax. Her daughter refused. This woman who would have been financially comfortable for the remainder of her life now had to survive on less than half of what she would have received if this very small and simple mistake had been corrected before her husband’s death.
It’s unfortunate but we’ve found that 8 out of 10 beneficiary designation reviews we do need changes to reflect a person’s intended purpose for how they wish their assets to be passed down. These changes are often simple. That’s why we urge you to review your beneficiary designations at least once a year. Take the time to make necessary changes, considering the changes in your heirs’ lives as well as your own. At Eric Scott Financial, we do beneficiary designation reviews as part of our Legacy Preparation crossroad to help you leave your money in the right hands when you pass away.
If you would like a beneficiary designation review or have questions about how your beneficiaries are set up, please call our office at (435)773-9444 and schedule a time to sit down with one of our retirement guides.