Costly Mistake, Easy Fix

Part of our work as financial advisors is to prevent our clients from making costly mistakes.  One of the most costly mistakes a client can make is to fail to ensure his/her the beneficiary designations are in good order. And while it can be a very costly misstep, in almost all cases the fix is both quick and easy.

A beneficiary designation is a contractual obligation of the product provider or custodian to pay your account balance, or death benefit, to the individual you name. Beneficiaries are named on life insurance and annuity products as well as retirement accounts such as 401(k) plans, IRA’s and Roth IRA’s. Beneficiaries are considered a ‘Will substitute’ because these assets bypass one’s will and are paid direct to the named individuals. The problem arises when either no beneficiary is named, or one fails to update their beneficiary to reflect their current wishes. Divorce, death of a spousal beneficiary, and other changes in one’s life often require beneficiary designations to be updated to best reflect a client’s current situation. When these updates are not made, account balances and death benefits are either paid to someone who was not intended to receive the funds, or more commonly, to the deceased estate. Both can be very costly to your intended beneficiaries. The good news is naming, updating or changing a beneficiary is usually as easy as completing a single, one sided form. Some elections today can be made quickly and easily online.

What to do? Consider revisiting all your beneficiary designations. Are they still current? Have there been changes in your situation since you made the original elections? Do any of your retirement assets name your estate as beneficiary? If so, talk to your financial advisor about what this election means for your beneficiaries and if there are other choices which could prevent costly taxes due on those accounts.  Most advisors will perform a complimentary beneficiary review to ensure your assets are passing as intended, in the most cost effective way. If they are not, it’s an easy fix.  This one simple review and quick fix can save your beneficiaries tens of thousands in undue taxes. Planning makes it possible.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA / SIPC. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principle. With any investment vehicle, past performance is not a guarantee of future results. Diversification and asset allocation strategies do not assure profit or protect against loss.