A lot is running through your mind when you leave the hospital and bring home a new baby. Whether it is your first, second, etc., or last child, making sure that your beneficiary designations are up to date is likely not a thought on the forefront. Between bottles, diapers, and baby snuggles, it can be easy to forget or delay reviewing and updating your beneficiaries. As a mom to a new baby, I can attest to how easily this important estate planning task can be sidetracked by the more pressing concerns that a newborn brings. New parent or not, let this article be a nudge for you, or share as a healthy reminder to someone you know.
Many of your account’s beneficiary designations can be adjusted during a midnight feeding through your online portal for certain institutions. Others may require specific paperwork that needs to first be requested. You may need to wait until baby’s social security number has been received to submit, but don’t let that keep you from starting. Start at the top of the list and update beneficiaries on each account with baby steps.
• Work Retirement Plans
• IRA Accounts
• HSA Accounts
• Life Insurance policies
• TOD/POD Investment and Bank accounts
• Will and designated guardians
You may run across labeling whether a person/entity/charity is a primary, contingent, or tertiary beneficiary. This is simply listing an order of who will claim to inherit your assets based on who is alive at your passing. A tier of options. Primary, as the name suggest, will be first in line. A contingent or secondary beneficiary, replaces the primary in their absence or if they choose to disinherit. A tertiary beneficiary will inherit if your primary and contingent options are not living or not willing to accept.
“Per Stirpes” is an additional option available for you to add on one or more of your designees. If you want your assets to flow down a branch of the family equally, in the event of a beneficiary dying before the account owner, consider adding per stirpes. For instance, if one of your primary beneficiaries dies before you, their share of your account will pass to their descendants. Without this additional Latin lingo, all living beneficiaries (on the same tier) will split the inheritance of predeceased beneficiary, potentially cutting out a family line.
An infant and a 15 year old are both minors. They will each need to have an adult act as a custodian on their inherited account in the unfortunate event of your death. Many broker-dealers, banks, and insurance companies allow for a custodian of a minor to be appointed on beneficiary paperwork. Who do you trust to act as a financial guardian of funds left for your child’s benefit? This can be the same or different person that you have named as actual guardian of the minor in your will. Once the child reaches the age of majority (age varies per state), they will be able to accept the account as their own.
Each institution that holds your assets will have a default if you do not fill out their beneficiary form. This could mean that your retirement account may go to your estate and your children could lose significant tax benefits. With baby steps, updating beneficiary designations can be easy to do – the challenge is often remembering to do it.
Published in the Victoria Advocate
Beth Koonce is a CFP® Professional and Lead Advisor with KMH Wealth Management, LLC.