Whether you grew up listening to the original “Who Do You Love?” recorded by rock and roll pioneer Bo Diddley in the 1950’s or heard the later blues rock rendition by George Thorogood in the late 1970’s, I bet you have sung this line a few times. Although the lyrics and even the titular line may have nothing to do with beneficiary designations or property titles, I always think of this song when discussing these subjects with clients.
Nobody likes to think about the prospect of passing away or the “who gets what” question in terms of passing assets to heirs. Instead, I like to encourage clients to consider who their loved ones are and how they wish to see any remaining assets benefit the people they love most. Out-of-date beneficiary designations, a lack of contingent beneficiaries, and incorrectly titled accounts or property deeds are a common mistake that can be extremely disruptive and costly for the people you love.
Clients sometimes neglect to update their documents and leave a prior spouse, deceased relative, or even a former love such as an old boyfriend or girlfriend as the beneficiary of a retirement account or life insurance policy. Failing to retitle investment accounts and the home or other real estate as transfer-on-death, joint tenants, or in the name of your trust will leave the assets subject to the probate courts, which may differ significantly from the provisions of your trust. Even a well drafted estate plan, including the Will, may not fully ensure your wishes are achieved if the beneficiary and title to assets have not been updated and coordinated with the plan itself.
Need an example? Let me speak from experience. My grandparents divorced in the 1990’s and when my grandfather passed away in 2009, we found out my grandmother was still the beneficiary on his life insurance policy. While I was happy to see her receive the funds, my grandfather had remarried and his wife was not so happy. She sued my grandmother for the money and lost. The courts are very strict about enforcing the named beneficiary as the intent of the deceased. And can you believe my grandfather was a life-long life insurance agent!? He knew better.
Need more examples? When the spouse of a client who had passed away found an old insurance policy and sent in the claim form, the spouse learned that the client had failed to change the beneficiary from a college girlfriend. Another client had separated from a spouse yet never divorced and despite a desire for assets to pass to her brother, the lack of planning and updating of forms lead to the estranged spouse receiving all of her assets. In another instance, a client with a deceased wife wisely named his children as contingent beneficiaries only he forgot to update and include his youngest child.
One very common mistake that clients make is they assume a loved one who receives assets will share with other loved ones, typically the belief that a child will wisely use received funds to benefit grandchildren. When you have specific intentions for gifting assets at your passing, it is extremely important to plan out and update documents to ensure your wishes are legally enforceable and not left to the good graces of loved ones who may be tempted to alter your verbal wishes.
Life events such as marriage, divorce, birth, death and even children or grandchildren reaching adulthood should signal the need for a discussion with your financial advisor and review of your beneficiary designations. Additionally, if you have not looked at your property deed since purchasing your home or drafting your trust, it is vitally important to review the title to your home and discuss with your financial advisor who would receive the property when you pass away.
Lastly, is also important to understand the difference between per capita (the default election) and per stirpes as methods of distribution and how the election may impact your wishes. This is a conversation better left for your financial advisor to explain each method and how it effects your assets. Just know that you may accidentally include or exclude family members as well as alter the percent you mean to give to particular loved ones depending on the election you have made.
You know who you love. The real question is, have you updated the necessary documents to reflect your feelings and ensure the people you love are properly included in your plans? If you cannot remember the last time you reviewed this, you should reach out to your advisor to schedule a time to discuss your plans and confirm your assets match the plan you have in mind.
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