While I’ve had my business for six years and been in financial services for 20, I am still learning things all the time. Today, I must share with you some information that I believe will help save you a great amount of trouble in the future.
If you, a parent, or family member has an account with a designated beneficiary, like an IRA, 401k or TOD account, and any beneficiary has passed away, MAKE SURE THAT THE BENEFICIARIES ARE UPDATED. It will save time and energy when the account owner passes away.
Here is your somewhat based on a real-life example: In the Johnson family, John Johnson has an IRA account. John has made his wife Jennifer the primary beneficiary of his IRA account and his four children, Jack, Jill, Joan, and George contingent beneficiaries, all per stirpes, or passing to their children if one of them has passed. Three years ago, Jennifer died. This means that when John dies, the account will be passed to the contingent beneficiaries upon the presentation of Jennifer’s death certificate. But what if Jack and Joan have also passed?
This is where it gets dicey. Joan has three children, so with the “per stirpes” designation, this means that with the presentation of Joan’s death certificate, John’s grandchildren can get their share of the account. But what about Jack? Jack has no children, so the IRA agreement with the custodian will determine what happens to Jack’s share. Does it pass to the other three contingent beneficiaries? Does it pass to John’s estate? How will all this be determined and by whom? And most importantly, does the result reflect John’s wishes?
This case only gets more complex from here, but your mind doesn’t need to spin from reading a blog post. The key takeaway is this: If you or anyone you know has an investment account with any beneficiaries who are deceased, be sure to update beneficiaries to specify the living individuals who you want to receive the account.
Russell D. Rivera, CFA, CFP® is the Founder and President of Voice Wealth Management (Voice) in New York, NY. He also likes to think of himself as a Personal CFO and Financial “Therapist” for entrepreneurs, young professionals, and their families. He helps clients make prudent financial decisions regarding spending, saving, investing, and planning while giving a voice to the individual client's financial priorities and experiences.