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updated: 11/12/2020 11:23 AM

When well-intended plans go wrong

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  • Jim Platania

    Jim Platania

By Jim Platania
Platania Financial

This has been a year no one could have predicted nor would like to have repeated. Most people found, and many still do, that they have more time on their hands with fewer things to do.

This could make for an opportune time to review your beneficiary designations.

In my 30-plus years of helping clients invest and plan ahead for their future, I have always emphasized the importance of estate planning and having up-to-date beneficiary designations on their IRA and 401(k) plans, Transfer On Death (TOD) accounts, annuities and insurance policies.

While you may have listed beneficiaries many years ago, a lifetime of financial planning will go wrong when death occurs and if beneficiary designations were not kept current.

Life changing events often alter who you want named as your beneficiaries. When these changes happen, updating beneficiary designations are typically not among the first things that come to mind.

Years later, too often, it is thought that everything was updated years earlier. It is easy for someone to make this mistake, but when it happens it can direct your assets to an unintended person or entity.

Do not let this happen. The responsibility of keeping your beneficiaries updated rests solely on you. When listing or updating beneficiaries consider the points below:

• Following the death of the account owner, the primary beneficiary is first in line to receive the account's assets, while the contingent beneficiary comes next in line if the primary beneficiary is no longer living. You can name multiple primary and contingent beneficiaries for each account.

• Consider whether you would like your beneficiaries to be listed as "per stirpes" or "per capita."

• Example: You have three adult children; each being named a one-third beneficiary on an IRA account. One of the beneficiaries dies while the IRA owner is still living.

• If the beneficiaries are designated "per stirpes," on the death of the IRA owner the two remaining beneficiaries, along with the decedents of the deceased beneficiary, will receive their one-third share of the account funds.

• If the beneficiaries are designated "per capita," on the death of the IRA owner, the account funds will be divided in two, with each of the living beneficiaries receiving half of the account funds.

• The beneficiaries listed on your Qualified accounts, such as an IRA or 401(k), should have a named beneficiary. These accounts are not typically governed by a will and instead transfer more seamlessly to the named account beneficiary (individual or entity). The same goes for TOD designations on certain Non-Qualified accounts.

• If you have a Trust listed as a beneficiary of a Qualified account, the Trust itself may need to be reviewed due the CARES ACT. Under this legislation, changes were made to the lifetime "stretch provision" payout that non-spouse beneficiaries were able to take advantage of.

In 2020 the new "stretch" provision allows for only a 10-year stretch of payments and some Trusts do not allow for this, leaving complex problems for the beneficiary.

• Confirming and updating your primary and contingent beneficiaries, especially when a major life event takes place. These events may involve the arrival of new children or grandchildren, a death in the family, or a divorce, among others.

Here is the take-away: Confirming and updating your beneficiaries is important and can help make an unfortunate major life event less difficult on your family and/or beneficiaries. Set aside some time soon to review your accounts and make sure your beneficiaries are in order for when it really matters.

• Jim Platania, CFP®, AIF® is President of Platania Financial, a family-run business specializing in retirement planning for individuals who are 50 and older.