Account Beneficiaries – An Easy and Critical Step

Adding account beneficiaries is one the best steps you can take for your family. It is a simple and cost-effective strategy to pass assets to your loved ones with ease. When someone you love passes away, it can be a very difficult situation, so why not try to lessen that burden?

If you have had the great fortune of being an estate executor, you understand the pain of having to deal with paperwork, attorneys, courts, banks, and so on. To put it bluntly, it can suck. Adding beneficiaries to your account can eliminate some hassles for your family.

Account beneficiaries are one of the five main tools to transfer assets. The list is organized in a specific order. The higher on the list a tool is, the easier, cost effective, and the minimal amount of time it takes to implement. The five main tools to pass assets to a loved one include:

1. Joint Ownership – Jointly owned assets automatically pass to the surviving owner (this includes joint tenancy and joint tenant with rights of survivorship accounts. This does not include tenancy in common account). Probate is not necessary.

2. Account Beneficiaries – Named person(s) on account whom are entitled to proceeds. Account beneficiaries come in multiple names including payable-on-death (POD), transfer-on-death (TOD) and designated beneficiary plan (DBP). Different account types call beneficiaries a different name. Probate is not necessary.

3. Will – Assets transfer according to a will using the probate process.

4. Trust – Assets transfer according to the trust. A common example is a revocable living trust. Probate is not necessary.

5. State Laws – If a person does not have a will, assets transfer according to your state’s law using the probate process.

What is so special about account beneficiaries?

Unexpected things can occur and beneficiaries are a great way to be prepared. Unfortunately, unexpected things do happen. For instance, a client for my employer died unexpectedly – the client was murdered by his neighbor. The client did not have up to date beneficiaries nor a will in place. The client was single, and the client’s 95-year-old mother was left to arrange the funeral and be executor of the estate. To lose a child and have to manage her child’s affairs took a severe emotional and physical toll on her health. If her child had some arrangements in place, such as beneficiaries or even a will, it would have helped to alleviate the burden, even a small amount, on her.

In addition to being prepared, beneficiaries also help with:

• Quick Access to Funds – Your loved ones can access the funds quickly since the assets pass outside the probate process.

• Privacy – Details regarding your assets are kept private since they are passed on to loved ones outside of the probate process. Why is this good? Because the probate process is public! Anyone can look to see what assets pass through probate, making your loved ones a target for fraud.

• Fees – Going through the probate process generally requires you hiring an attorney. Having account beneficiaries can limit attorney fees for the you estate.

• Tax Consequences – Certain accounts such as an individual retirement account (IRA) have advantageous rules if there are multiple account beneficiaries. It allows beneficiaries to either eliminate or spread out tax consequences, depending on the situation, over an extended period of time.

Adding account beneficiaries is quick and easy now that many institutions allow you to use electronic forms. You need four main pieces of information to add a beneficiary:

• Beneficiary Name

• Relationship to You

• Date of Birth

• Percentage Portion (if there is more than one beneficiary)

In addition, if you know the beneficiary’s social security number, add it as well. This information generally does not change over time, so you do not have to worry about updating it down the road.

Here is a tip – skip the rest of the information including home address, phone number, and email. This information tends to change over time. In this case, less is more.

Below are the links to instructions on how to update your beneficiaries at a few of the major custodians:

• eTrade

• Vanguard

• Fidelity

Once your beneficiaries are set, print the beneficiary details, and file it away. Set it and forget it until a major life event occurs. Major life events include marriage or divorce, birth or adoption of a child, death of a loved one, change in employment, change in insurance or retirement plan providers, drama in the family, etc.

And when you do need to make a beneficiary change, guess what? It’s simple and free! Go to the institution and make the change. Unlike trusts and wills, which require an attorney because of their complexity, you can change your beneficiaries yourself for free! It helps you and your family to be prepared for anything. You need only a small amount of information about the beneficiaries to add them. What do you have to lose? Nothing, but your family and loved ones do.

Last, do talk to an estate attorney. Realistically, most people cannot avoid probate entirely. Beneficiaries are an important tool that is part of a bigger estate plan.

Need help figuring this out? Want to set up an online account at your institution but don’t know how? Let’s work together.