Episode 40: Reviewing Your Beneficiaries
May 19, 2023
Now that tax season is behind us, this is a great time to review your legal documents and name or update your beneficiary list. On this episode of Wright Monday Tips, Isaac Wright, CFP®, ChFC® and Ricky Lafon, MBA, CFP®, RICP®, WMCP®, discuss the importance of family preparedness and what you should consider when reviewing your beneficiaries.
Here are just a handful of the things that we'll discuss:
- The importance of naming beneficiaries.
- What happens if there are no beneficiaries listed.
- Why you should alert each beneficiary of being named on an account.
- Why it’s important to have updated contact information on file.
- Recommendations on how often you should update your beneficiary list.
- How beneficiaries work on your accounts relative to a Will or a Trust.
Isaac Wright: Well, welcome back to Write Money Tips. We’re getting close to the halfway point through the year. As you already know, if you’ve been listening to us for over two years, we try to bring topics to you that we think are going to be relevant. Sometimes they’re complicated, sometimes straightforward, but today’s going to be a good one where I feel like regardless, everybody needs to be aware of the beneficiaries that they choose and how your beneficiaries work on your accounts relative to a will or maybe even a trust.
So today, Ricky, I’m glad to have you on our program. Ricky is a CFP® professional (CERTIFIED FINANCIAL PLANNER™) and one of our lead advisors here at Financial Dynamics. And really Ricky, you know, even though we take it for granted in a way, we’ve been doing this for so long, I think it’s good to talk about, because sometimes people have beneficiaries listed on accounts, but they don’t realize how some of the things that they do will impact how that money ultimately gets distributed. So, you know, I think maybe a good place to start when it comes to your beneficiaries, the people that you love, that if something, Lord forbid, happens to you, where that money goes.
Let’s start with a little bit about just beneficiary designations and a couple of things that we need to keep in mind as we go through the year.
Ricky Lafon: Great place to start off. And, you know, here at Financial Dynamics, we put in front of our clients every time we meet with them a beneficiary list to review the accounts that we take care of, who are the beneficiaries. That prompts us to ask about accounts outside of Financial Dynamics such as checking, savings, 401(k)s, things like that, that may have been forgotten along the way to make sure that everything’s up to date to our client’s liking. And then we take the next step and talk about, well, do we want that to go to a child, a grandchild, a charity? What products, what accounts do they have inside their plan that are best suited for each beneficiary type.
Isaac Wright: When I’m listening to that, for the most part, I think it’s important when it comes down to how that money gets inherited, if you will, from your beneficiaries. What’s the main thing that you’ve seen when it comes to beneficiaries listed in a will versus listed on accounts?
Ricky Lafon: You know, that’s a great place to start as well. We get that question a lot. And our clients are surprised when we say, “If you have a beneficiary on your account, that’s going to go out to that beneficiary. And that’s going to basically supersede what the will says, or if there’s a trust in place as well, those beneficiaries are number one.
That’s the reason it’s so important to have those set up correctly. And then if there’s no beneficiary on an account, that can go back to the estate which goes through probate. If you have the trust titled on an account or beneficiary to a trust, then those trust provisions really come into play. But people are often surprised. That the trust is not number one, beneficiaries are number one.
Isaac Wright: Well, you know what I’m taking away from what you’re saying is this is, you may have done all the work on your legal documents for a will or a trust, but if that’s not listed as a beneficiary or if you have an individual listed on an account, then that money, it may very well go to that person, never even touch your legal documents that you have maybe spent money, time, and all the above on.
When we say financial planning, it’s not all about picking a stock. I mean, you want to make sure that again, that money is being distributed and you understand how that money’s going to be affected.
And you said, as far as our beneficiary checkpoints here at our firm, well, that’s exactly why we do that. It’s because for all of you listening, if you don’t have a scenario where all of a sudden, maybe you’ve had a death in the family, maybe you’ve had a situation where you’ve had a new child, grandchild, or you’ve spent maybe hundreds or even thousands of dollars, on legal documents that you expect to work for you, it doesn’t work if you don’t have proper beneficiary designations. I think, by far and away that, that’s probably the biggest mistake we’ve seen.
Let me just open it up to you. Outside of that though, when it comes to beneficiaries, anything else you want to add?
Ricky Lafon: Yeah, I think here at Financial Dynamics, we do a wonderful job of working with whatever attorney our clients are working with to make sure their legal documents, including their trust, are reviewed on a periodic basis to make sure those trust provisions, their beneficiaries, their wills, power of attorney, medical directive are all up to date.
I think that’s something that’s important because a lot of people, when they get legal documents completed, it’s sort of a set it and forget it. But that’s not the way it should be. Every two or three years, we know life changes, the dynamics of families change. Things can prompt changes with those legal documents and we’re not lawyers, but we help coordinate that inside of a holistic plan to bring back in that attorney to make sure all those things are up to date to the client’s liking. So if something happens tomorrow, there’s no surprises.
Isaac Wright: Yeah. You know, another thing too, if we get off the schneid of exactly how your beneficiaries are going to be listed, because I think we made that point clear for all of you paying attention today.
Also, you need to know the type of money that you’re going to be beneficiating to whoever. For example, if it’s a highly taxed account, it may be beneficial to give that money to a charity if you’re charitably inclined.
Some accounts get step-up in basis where they’re not dealing with a big tax issue. You know, the other thing is I’m sitting here thinking, you know, what if a child who is 18, 19, 20 years old or a grandchild inherits a six or seven figure amount of money, how many of you would be comfortable having that kind of money inherited as a lump sum? Lord knows when I was in my late teens or early twenties, that would’ve been a challenge, to say the least, to be responsible. So, you know, a lot of those things come into play and really when we talk about people that have multitudes of different accounts, it’s just so easy to miss a beneficiary.
Ricky Lafon: A hundred percent. I would agree with that. We need to make sure whatever accounts you have and the tax implications that come along with those are known so that we can assign those to a charity, a child, a grandchild. We even offer and recommend bringing in an attorney for a trust to make sure that your final wishes are granted should something happen.
Isaac Wright: You know, where trust planning I think really helps, or legal documents in general, is if all of you paying attention, if you do have a beneficiary that is a spend thrift or a minor. You’re going to have a situation where, best case scenario for a minor, you want to dictate maybe a guardian or somebody that maybe is going to be responsible for the money until this person turns a certain age.
But it gets back to what I said earlier. Let’s say they turn 18. You don’t want them to be carte blanche over a ton of money. That’s where having some trust planning can help you, let’s call it separate or you know, spread that money out over a period of time in chunks. Those are things that people just don’t think about.
You know, Ricky, I don’t know if we want to add much to this because for all of you, I think that the key point here is this. This is a great time of the year to get your beneficiaries listed. You all are just getting past the point of getting your taxes done. That’s past us. A little bit of downtime, hopefully for you in a way when it comes to, you know, having to deal with all of that with the accountant.
But just check your beneficiaries. We’re happy to help you with that, make recommendations off of that. Ricky, anything you want to add before we wrap up today?
Ricky Lafon: I don’t think so. I think we try to keep it as simple as possible. It’s our job to get down in the weeds and get very granular with our clients. But for today, I think that’s a great place to start. Just look at your beneficiaries. And if you have any questions, pick up the phone, give us a call.
Isaac Wright: Well, Ricky closed up the show for us today, guys, so look forward to talking to you next month on Wright Money Tips. Isaac Wright, Ricky Lafon. We appreciate your time, and we look forward to seeing you soon.
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Advisory services offered through J.W. Cole Advisors, Inc. (“JWCA”). Financial Dynamics & Associates, Inc. and JWCA are unaffiliated entities.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.