Securing Your Financial Legacy: The Crucial Task of Reviewing Investment Account Beneficiaries

I generally enjoy listening to the musings and interviews by Dr. Peter Attia on his podcast The Drive. If you aren’t familiar with it, The Drive is a podcast that focuses on the science of aging and longevity. Yet while I can summarize many episodes by saying advancements in medicine and health science offer quite a few ways to age better, it goes without saying—we’re all going to die sometime. With that unavoidable truth in mind, we’re going to dive into a topic that might not be as thrilling as market trends or stock picks but is equally—if not more—important: reviewing your investment account beneficiaries. Yes, I know it sounds like financial housekeeping, but trust me, it is a task that could make a significant difference in securing your financial legacy.

After spending years building your investment portfolio, making wise financial decisions, and weathering market storms, have you considered what happens to your hard-earned assets when you die? That is where the often overlooked yet critical task of reviewing your investment account beneficiaries comes into play. In fact, we believe it is so important that we have included dedicated time in our next planning meeting cycle to review beneficiaries with all our clients.

Ensuring Your Wishes Are Honored

First and foremost, let’s talk about control. Reviewing your investment account beneficiaries gives you the power to designate who will inherit your assets when you are gone. It is like writing your financial last will and testament, ensuring that your wishes are not only known but also legally binding.

Life is unpredictable, and circumstances change. Marriages, divorces, births, and deaths are part of the human experience, and they can have a profound impact on your family dynamics. By regularly reviewing and updating your investment account beneficiaries, you can adapt to these changes and ensure that your assets align with your current wishes.

Avoiding Unpleasant Surprises

Now, let’s address the elephant in the room: unexpected events. None of us like to think about the possibility of incapacity or sudden demise, but it is a reality we must face. Failing to update your beneficiaries regularly could lead to unintended consequences, such as your assets being distributed to an ex-spouse or a family member with whom you are estranged.

One small, but often overlooked piece of naming beneficiaries that may cause a surprise for families are the terms “per capita” and “per stirpes.” A “per capita” beneficiary designation means that if one of your beneficiary’s pre-deceases you, their share gets split among the remaining named beneficiaries. For example, if you named three beneficiaries on your IRA account and one of them pre-deceases you, their 1/3 share gets split with the other two surviving beneficiaries, which means the remaining beneficiaries split your account 50/50. However, a “per stirpes” designation means that if one of your beneficiaries’ pre-deceases you, their share goes to their children (if any.) So, in my example above, the originally surviving beneficiaries would still get 1/3, but the remaining 1/3 would get split amongst any surviving children of the beneficiary who pre-deceased you.

Regularly reviewing and updating your beneficiaries ensures that your assets go where you intend, avoiding any unpleasant surprises for your loved ones.

Tax Efficiency and Legacy Planning

Beyond the emotional and personal aspects, reviewing your investment account beneficiaries has practical implications, especially when it comes to taxes and legacy planning. The way you designate beneficiaries can impact the tax consequences for your heirs.

For example, naming a specific individual as a beneficiary may have different tax implications than naming your estate or a trust. By working with a financial planner, you can stay informed about tax laws and regularly review your beneficiary designations so you can optimize your legacy plan and minimize tax burdens on your loved ones.

If you plan to do charitable giving with your estate, it is also important to coordinate the donation of assets with your Will. For instance, if you have both retirement plan accounts and non-retirement plan accounts, “who gets what” could have a big impact on how much of your assets go to our friend Uncle Sam and how much goes to your beneficiaries. One specific item to consider is that it may be better to list a charity as a beneficiary on your IRA instead of naming them through your Will. Charities do not pay tax on money they receive from an IRA, while an individual would pay tax, so leaving non-IRA money to an individual and IRA money to charity could lower the overall amount of tax paid by your beneficiaries.

The Importance of Open Communication

In addition to reviewing your beneficiaries, fostering open communication with your family about your financial plans is crucial. Letting your loved ones know about your decisions and the rationale behind them can prevent misunderstandings and conflicts in the future.

Consider having a family meeting to discuss your estate plan and the roles each beneficiary will play. This not only ensures transparency but also provides an opportunity for your heirs to ask questions and seek clarification. Open communication can strengthen family ties and create a smoother transition of assets when the time comes.

A Wise Investment in Your Legacy

In the fast-paced world of investments and financial planning, it’s easy to overlook the seemingly mundane task of reviewing your investment account beneficiaries. However, this small effort can have a profound impact on the legacy you leave behind.

By taking the time to regularly review and update your beneficiaries, you ensure that your assets align with your current wishes, avoid potential pitfalls, and optimize the tax efficiency of your legacy plan. It’s not just about securing your financial future; it’s about leaving a lasting impact that reflects your values and intentions.

So, let’s add beneficiary reviews to our financial to-do list and make it a habit. After all, securing your financial legacy is one investment that will always yield returns for generations to come.

Schedule an introductory phone call with Mark at this link: Mark Brinser – Introductory Phone Call

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