Apr 13, 2022
Several accounts allow you to name beneficiaries, some of which are likely familiar. It’s always important to name beneficiaries when given the opportunity. Doing so has some major benefits! On this episode, I’m going to discuss the different types of accounts that allow you to name beneficiaries, who you should and should not name as a beneficiary, how often you should update beneficiaries and more essential estate planning info!
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You will want to hear this episode if you are interested in...
- These accounts allow you to name beneficiaries [1:36]
- List these people as your beneficiaries [3:16]
- Keep these people off your beneficiary list [4:08]
- This is how often you should update your beneficiaries [7:46]
- Common beneficiary mistakes and mishaps [9:11]
- What is per stirpes and per capita? [10:33]
- Do your homework [12:40]
Knowledge is power
When starting the estate planning process, it’s important to list a beneficiary on every account possible. Ideally, the naming process happens when the account is opened. However, because one (or many) may have slipped through the cracks, you need to know which accounts allow you to name a beneficiary in the first place. Some of the most obvious are insurance products and annuities. I say that because who pays for a life insurance policy that benefits no one? Less obvious accounts that need beneficiaries are retirement accounts. Companies will often have physical or digital paperwork that needs to be completed to name these beneficiaries so talk to your HR representative to make sure everything is in order.
The following retirement accounts are eligible to name beneficiaries:
- 401k plans
- 403b plans
- 457 plans
- Simple retirement plans
- Simplified Employee Pension Plan (SEP)
- Profit-sharing plans
- Keogh plans
- Health Savings Accounts (HSA)
- Flex Savings Accounts (FSA)
- Traditional IRAs
- Roth IRAs
Keep it in the family
The next biggest question most of my clients have is who they should name as their beneficiaries. A great rule of thumb is that if you have family, they should be named as your beneficiaries. Generally, spouses are your primary beneficiary with children listed as your contingent beneficiary. Children can be named as the primary beneficiary, but if your spouse is alive when you pass away it can create unnecessary complications that would award them the benefit anyway. Another great option is donating the benefits from these accounts as a legacy gift. Charities and other qualifying 501(c)(3)s can be named as beneficiaries on these accounts as well.
One question that some clients fail to ask is who they SHOULDN’T list as a beneficiary. At the top of my list is anyone who is receiving any type of financial assistance such as a special needs child or a spouse on Medicaid. Receiving these assets upon your death could disqualify them from these programs. Another beneficiary to avoid is your estate. You would think that naming your estate as the beneficiary of a retirement account is a good idea, but it’s often an overly complicated one. Assets that pass through your estate are likely subject to probate, which can delay receipt of these benefits for up to 9 months. You’re better off directly naming your beneficiaries so that it’s an easy process in an already difficult time. Listen to this episode for more information on naming beneficiaries!