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5 tips for naming beneficiaries

Designating beneficiaries lets investors control who gets how much of their investment distributions when they die. As Mike Hoelzl explains in a Money Talk Video, naming beneficiaries can help cut confusion, delays and expenses. Mike spoke with Joel Dresang. A transcript of their discussion follows.

Joel Dresang: Mike, when investors set up accounts, I know that you work with them to make sure that they designate beneficiaries to receive their money when they die. Why is that so important?

Mike Hoelzl: For retirement accounts like IRAs, beneficiary designations let the investor control who gets the money and how much. And it also helps avoid the expenses and delays of going through probate.

Joel: Let’s cover some of the highlights of naming beneficiaries. You’ve actually come up with a list of five tips. The first one is to name people as beneficiaries. Explain that.

Mike: So that’s the easiest thing to do, is to name an individual person as a beneficiary. Now you can name whether it be a trust, a charity or some other entity as a beneficiary, but that can have some unintended consequences. So it’s better to have them as an overall part of your estate plan than just as an individual beneficiary.

Joel: So primary beneficiaries typically are spouses, and in marital property states like Wisconsin, if you don’t name your spouse as primary beneficiary, the spouse has to sign off on it. But that brings us to your second tip and that’s to clearly name contingent beneficiaries.

Mike:  That’s right. Those are your secondary beneficiaries. And what you want to do, just like primary beneficiaries, you want to specify the percentage that each beneficiary will get. Otherwise, it’ll be divided equally. There’s two ways to do it. You can either do per stirpes or per capita. Now per stirpes means that if one of the beneficiaries precedes you in death, their children will get the portion of that money. Per capita, which is the default setting, means that if one of the beneficiaries proceeds you in death, the remaining beneficiaries will split the money.

Joel: You mostly deal with investors with their IRA retirement accounts, but your third tip is to make sure that you name beneficiaries for accounts at work.

Mike:  That’s right. So, when you start a new job, there’s a lot going on, and it can be very easily overlooked that you just forget to put beneficiaries on your 401(k), 403(b) or even your pension. So I recommend that you go check your account online. If you can’t access it online, then go to your HR office, and they should be able to help you out.

Joel: And this applies to accounts other than retirement accounts, like brokerage accounts and bank accounts. So your fourth tip is that people should make sure that they name beneficiaries for other accounts.

Mike: For your individual and your joint account, you can have what’s called a “transfer on death” designation, and that allows you to clearly name beneficiaries for those accounts. And that will also help again avoid the delays of going through probate court, just like an IRA would.

Joel: Once investors have named beneficiaries for all their various accounts, your fifth tip is to make sure that they review designations regularly.

Mike: When you stop in to see your advisor, ask to see your beneficiary designations, and make sure they’re up to date. And if one of your beneficiaries passes away, make sure to update those designations right away. Also, if there’s a major life event that happens, such as a marriage, a divorce, or the birth of a child or a grandchild, you should update those designations right away. And make sure that the contact information is up to date for all your beneficiaries as well.

Joel: This is a complicated topic. It involves lots of different strategies, can have tax implications. What’s your one best piece of advice?

Mike:  There really is no one size fits all. You should talk with your advisor, or maybe even a lawyer or an accountant that specializes in estate planning, and make sure you have a plan and you get it written down.

Mike Hoelzl is an investment advisor at Landaas & Company.
Joel Dresang is vice president-communications at Landaas & Company.
Money Talk Video by Jason Scuglik and Pete May

Learn more
When Should I …check my beneficiaries? by Art Rothschild and Isabelle Wiemero
Designating your beneficiaries, by Isabelle Wiemero
Plans to consider, by Lexie Brown
Keeping family in the financial loopa Money Talk Video with Isabelle Wiemero
When a loved one passes, what happens to their accounts?, by the Financial Industry Regulatory Authority
Retirement spending with heirs in mind, a Money Talk Video with Dave Sandstrom
Investing for two – for the long run, a Money Talk Video with Isabelle Wiemero
(initially posted May 25, 2018)

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