Bene-fleeciaries or Beneficiaries

Originally posted 3/28/16

"It ain't what we don't know that gets us in trouble. It's what we know for sure that just ain't so.”

-Mark Twain (1835-1910), Author and Humorist

How can you not love that quote? Speaking for myself, I know that Mr. Twain’s quote has served me well for a long time. I have said for a while that one of my few strengths is that my circle of competency can fit inside a thimble … and I realize that!

Allow me to share with you a true story that took place in the recent past. It involves a client of ours who I will call Sue Smith (not her real name). Let’s roll the tape on this phone call:

Sue: Brian, this is Sue Smith. How are you doin’?

Brian: I’m fantastic. What about you Sue?

Sue: Well, I’m good, but you are not going to believe this.

(I brace myself for a death announcement or worse)

Brian: What’s going on Sue?

Sue: Well, you know I was previously married, right?

Brian: Of course I do (I am feeling a little less tense now),

Sue: Well, I got a call from an insurance person to confirm that I really am who I am.

Brian: Yeah. I assume you are who you really are still? [laughter]

Sue: Of course! Stop it! The insurance person called to let me know that I was named as the beneficiary on a life insurance policy on my ex-husband, Sam (not his real name), who recently passed away. I’m pretty sure that was not supposed to happen.

Yeah, I’m pretty sure that was not supposed to happen either. Within a couple months Sue received a very meaningful check. Guess what? There is nothing that Sam’s heirs can do about it.

Basics of Beneficiaries

• Planning and revisiting your beneficiary designations will insure that your money goes to the right person(s) and avoids the situation I mentioned above.
• Planning will also prevent potentially delaying money getting into the hands of loved ones after you pass.
• Beneficiary planning will avoid probate and keep these affairs private.
• Charity – having a charity named may be a more tax efficient method for your monies

One scenario that Warren and I run into periodically involves new clients that we are bringing on board. Years earlier some of them had rolled over their 401k into an IRA at Fidelity, Charles Schwab or some other online broker. What we often find is that there was neither a primary beneficiary named nor contingent beneficiaries. There should always be a beneficiary named.

What if this error was never caught as I am sure is the case in thousands of instances. Unfortunately, many default provisions would set forth that the account goes to the IRA account holder’s estate, turning the account into a probate asset subject to fees, a delay in the transfer of the account and additional legal scrutiny. Furthermore, probate could potentially place the account in the wrong hands. Remember my story about Sue and Sam?

In addition, not naming a beneficiary for the account could prevent the account holder’s beneficiaries from being able to take advantage of the ability to keep growing their inheritance on a tax-deferred basis, potentially for many years. Warren and I strongly encourage clients to name contingent beneficiaries to prepare for the unlikely scenario of the account holder and spouse passing at the same time. We review these beneficiary designations in our Family Security Training module.

What should you do now?

In the next 10 minutes, write down all the retirement accounts, insurance policies and annuities you currently have. Then list the beneficiaries, the person or persons designated to receive the assets or proceeds in the event of your death, for each.

Were you able to do it? If you were not, you should call each organization you have these accounts/policies with and confirm who is listed as your primary and contingent beneficiaries. We find old life insurance and annuities seem to have incorrect beneficiaries the most. Make sure you request a copy of the beneficiaries from each organization that you can keep in your files.

It sure would be a shame if you were on the wrong end of the example with Sue and Sam.

Thank you for the trust and confidence you have placed in us and giving us the opportunity to provide education to you on your way to building your wealth.

As always, thank you for the introduction of your friends and family that so many of you have made. We are honored to serve you! As a service to our clients, we are happy to act as a sounding board for your friends and family. If any of them should need a second opinion on their financial situation, introduce them to www.striblingwhalen.com or call us at 678-989-0048.

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Regards,

Warren D. Stribling, IV, CFP®
Principal
warren.stribling@striblingwhalen.com

Brian E. Whalen, CFP®, CIMA®
Principal
brian.whalen@striblingwhalen.com

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Brian Whalen and Warren D. Stribling and not necessarily those of Raymond James.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.