It isn’t often discussed, but estate planning (or lack of estate planning) isn’t the only way assets pass to heirs. A very common way an heir receives assets is pursuant to a beneficiary election or payable upon death contract. Passing assets via a beneficiary status is not limited to just qualified retirement accounts and life insurance; many banks and brokerage sites will provide you with an option to skip probate and pass the assets directly to a beneficiary. While beneficiary statuses makes it easy for an heir to inherit property it comes with an added level of responsibility.
Everyone Should Review Their Beneficiary Statuses Yearly
It was almost a year ago when I decided to talk to my brother about buying investments for my niece’s birthday instead of another garbage toy that she won’t care about 6 weeks later. The conversation went fantastic, so we opted to have the same conversation when my sister-in-law had her baby girl. While I was creating the account I took a look at my beneficiary statuses (I have a number of accounts with my broker for different purposes).
Two things came about that shocked
- Some beneficiary statuses were not filled out
- My Traditional IRA’s beneficiary status was wrong when considering my current testamentary intent
If a beneficiary status or terminable upon death provision is not filled out the asset likely passes to your estate. As with everything there are exceptions. A particular company can elect who the money or investment will go to if the beneficiary status is left blank.
The blank beneficiary status was of less concern to me since the account would fall back into my estate and be left to my son anyway, however, the wrong beneficiary status was alarming.
My traditional IRA was created in 2002 or 2003. It doesn’t have a lot of money in it since most of my retirement funds were acquired with my current employer so they are stuck in my 401(k). Notwithstanding the lack of funds, the beneficiary status had The Wife has primary beneficiary and then my parents as contingent! This is obviously not my testamentary intent anymore. This led me to checking every single account I owned.
When is the last time you checked your beneficiary statuses or terminable on death provisions?