Wrong beneficiaries: How to avoid these costly mistakes

Bill Keen
Bill Keen: Beneficiary mistakes are entirely avoidable with proper planning.

Not properly planning your beneficiary designations could mean your hard-earned assets end up in all the wrong places.

One time I was referred in to a situation where the mother had recently passed away. The oldest child was named the beneficiary of the mother’s estate with the understanding that he would split the assets equitably among his three other siblings (and he had planned to do that).

Somehow, the assets got transferred into a joint account with the oldest child’s wife. She quickly drained a good portion of the account then filed for divorce. By the time I was brought in, it was a complete mess.

This is just one horror story about people whose money went to the wrong place because they did not understand the process of properly naming beneficiaries.

An important part of our ongoing checklist process at Keen Wealth Advisors is to discuss and review our client’s beneficiary designations to ensure that their money is set to go where they want it to go.

Now, you might think you’re fine because you have a will that does state your intentions correctly in terms of how you want your money to be allocated when you pass. The problem here is the beneficiary designations on certain assets supersedes the terms of a will.

For example, assets such as retirement accounts, life insurance policies, and annuities pass on after your death to the people stated as beneficiaries on your account—and not by the terms of your will.

It’s quite possible you have old insurance policies, CDs, savings bonds, or other assets that are not titled correctly or do not have the correct beneficiaries designated to reflect your current wishes.

Make Sure Your Money Goes to the Right Places

Here are five steps to take to ensure your money is set to go exactly where you want it to go.

  1. Put together a list of all your assets including investment accounts, retirement plans, insurance policies, savings bonds, CDs, bank accounts, and real estate.
  2. Review how each account is titled and who, if anybody, is the designated beneficiary.
  3. If you have an estate plan, make sure your account registrations (titling) and beneficiary designations are aligned with your estate plan and with your wishes.
  4. Review your titling and designated beneficiaries any time you have a life event such as marriage, divorce, birth or death of a child, death of a spouse, or estrangement from a family member.
  5. Work with a qualified professional such as a financial advisor or attorney if you are unsure about how to do this.

Nobody wants to see their heirs fighting in court over an estate because the beneficiaries on some accounts did not match the wishes stated in an updated will. These mistakes are entirely avoidable with proper planning.

Are Your Beneficiaries Emotionally Ready?

Here are two more things to consider.

First, having the wrong titling or incorrect beneficiaries could cause you to pay much higher taxes. For example, if your estate is the beneficiary of your retirement plan, then the entire proceeds must be paid out—and taxed—within five years. By contrast, naming an individual gives you more options to stretch out the distributions and taxes over a much longer period.

Second, have you considered the emotional or financial readiness of your designated beneficiaries? If you have any concern that your heirs might not be ready to receive a big pot of money all at once, there are ways to structure it so they don’t blow it right away.

Figuring out the proper account titling and beneficiary designations so you maximize your financial results and ensure your money goes exactly where you want it to go can get complicated very quickly.

To avoid mistakes in this area, I encourage you to follow the five steps I outlined above and if you have any questions, please give us a call at (913) 624-1841 or send me an email at bkeen@keenwealthadvisors.com.

We are here to help you.

About Bill Keen

Bill Keen is the founder and CEO of Keen Wealth Advisors, an independent Registered Investment Adviser serving affluent clients preparing for retirement. Bill brings over 23 years of financial services experience and holds the CHARTERED RETIREMENT PLANNING COUNSELOR designation. Bill created Keen Wealth Advisors to build one of the country’s most personal and trusted wealth and retirement advisory firms. He is passionate about serving his clients as a trusted financial coach. To learn more about how we may be able to help you, please contact us at (913) 624-1841.

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