Regency Wealth Management

Do You Know Your Beneficiaries?

Do you know who your beneficiaries are? It’s not something you think about everyday, but failure to update accounts with new or different beneficiaries can create a wide-range of problems, like one a Regency Wealth Management client recently found out.

Years ago, the client had been named as a beneficiary on a 401K plan by a former girlfriend. Unbeknownst to him, she had not changed the designation when their relationship ended. The two went their separate ways. But, when the girlfriend recently passed away, her family was left with a retirement plan that named the old boyfriend, not her husband as the beneficiary. The husband had to call the old boyfriend and ask for help in recovering the money since it had not been his wife’s intent. The situation was resolved amicably, but it was uncomfortable and time-consuming.

In another case, a family was left with a larger than necessary tax bill because an IRA lacked a secondary beneficiary. When the account holder passed away, the family discovered that the primary beneficiary had been the spouse who predeceased her husband. Because they weren’t listed as secondary beneficiaries, the account holder’s children could not rollover the proceeds to an inherited IRA and stretch out the payments. The money went into the estate, where it was taxed at a higher rate.

The confusion and heartache could have been avoided by an annual review of account beneficiaries. Few people remember from year to year how the beneficiaries of their retirement plans, annuities, and insurance policies are designated. But with a simple phone call to the account provider or investment institution, the owner can get a current list of beneficiaries and make any desired changes, typically with a simple form submission.

Mark Reitsma, partner at Regency Wealth, noted each client’s beneficiaries are checked during standard periodic reviews. “Reviewing the beneficiaries on accounts only takes a second, and it can avoid a lot of messiness in the long run,” Mr. Reitsma said. For example during a new financial plan relationship, Reitsma found that the client who had remarried after a divorce did not designate his new wife as the beneficiary of his 401k. The 401k was not part of the divorce settlement, so his client was free to designate his new wife. “If we hadn’t identified this issue for our client, it would have meant a lot of additional heartache for his new wife if her husband passed away. We were glad to be able to help and include this as part of our process” said Mr. Reitsma.

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