Allworth Co-CEO Scott Hanson explains how taking just a few minutes out of your day today can save a lot of heartbreak and confusion down the line.
You’ve got a lot on your mind, and a busy life.
And even though I hate to be the one who stokes your anxiety, but because, frankly, what I’m about to tell you happens all the time, I’ll gladly be the nudge if it motivates you to follow through on what I’m about to say.
Here’s a crummy story.
Many years ago, a friend of mine married her college sweetheart and immediately took a dream job as a biomedical engineer with a cancer research firm. Both her and husband’s careers required a lot of travel, which took a toll on the young marriage and, after only a couple of years, sadly, it ended.
Later, however, she met someone new. They got married, had children, built what by nearly any standard was an admirable, productive life, and they lived happily together for almost 20 years.
Unfortunately, a few years ago, my friend died in a car accident.
Then everything got worse.
A conscientious saver, my friend’s large 401(k) balance passed, not to her family, as her will clearly stated, but instead to her ex-husband, who, via oversight, had been left as the sole beneficiary on her retirement account. (And while, certainly, you’d hope the first husband would return the money, even though they hadn’t spoken in over a decade, as happens more often than you might expect, citing some vague promise she’d made years earlier, he actually refused.)
Because beneficiaries listed on retirement accounts (among other things) supersede those listed in the will, there wasn’t a whole lot her family could do.
Along with retirement accounts, here are some simple asset beneficiary contingencies that, if set up correctly, will give you and your family peace of mind.
And they typically only take a few minutes to check.
On the other hand, if you overlook one of these, or one like these, and accidentally leave, say, a former spouse as the beneficiary, these same contingencies will devastate your family.
How do the wrong people get left as the beneficiaries on retirement accounts?
By the time you’ve matured and accrued some wealth and savings, you’ve likely lived a few different lifetimes.
By “a few different lifetimes” I mean, you may have been married more than once, you might have children or stepchildren with more than one former partner, you might have changed employers several times, you might have several retirement accounts, and, depending on the ages and number of dependents you have, you’ve almost certainly altered your insurance coverage (possibly numerous times).
When it comes to assets, it’s a reasonable (though incorrect) assumption that a last will and testament—with its expense and notarizations—is the final word in all financial beneficiary processes.
But it most certainly is not.
With that in mind, what follows are some common accounts whose beneficiary designations override whatever you have recorded in your legal will.
Let’s say you have a standard brokerage account (also known as a “taxable brokerage” account) that holds stocks, bonds, mutual funds, ETFs and other investments. These accounts can have anywhere from one (you), to two (you and a spouse), to several (even non-relatives) listed account holders.
So, what happens if you die?
In a straight-forward situation where you and your spouse have joint ownership with “right of survivorship accounts,” the joint registration will typically transfer full ownership to your shared account holder (spouse).
But what happens if you both die, or if you are the sole accountholder? That’s precisely why you need to have designated a beneficiary inside the account so that you will have established what is called a “Transfer on Death” (TOD) registration.
While a TOD will keep the money from having to pass through probate (which, depending on where you live, is a bear), as with retirement account beneficiaries, the “named” beneficiaries on your brokerage account(s) will automatically get the money in the event of your death (over whomever is listed in your will).
Like a TOD, this too-often-mishandled transfer-of-assets mechanism is called a Payable on Death (POD) arrangement.
PODs (also known as a “Totten trust”) cover assets at your bank (or savings and loan), which could include money in your checking or savings account, but which could also be something like a savings bond or a certificate of deposit (CD). Easy to set up, you merely need to fill out the proper forms at your bank branch. (As with naming the proper beneficiaries on your retirement accounts, this should keep your money out of probate and get it quickly in the hands of the person you designate as the beneficiary.)
The advantages of a POD are that while the “named beneficiary” will have no access to the money while you are alive, these assets immediately (and directly) transfer ownership in the event of your death. Additionally, because a POD is a type of revocable living trust, if registered as a POD, and not merely a typical bank account, the FDIC will insure up to five separate accounts for $250,000 each. (That means that if you have, say, five beneficiaries, and you want each to be insured, you can disperse the monies over five separate accounts and insure each for a total of $1,250,000.)
In closing, while in the strongest terms possible I encourage each of my clients to create a will (while there are untold numbers of legal and logistical reasons why you absolutely must have one, that’s a topic for another time), it’s every bit as important to take just a few minutes and make certain that all of your beneficiaries on your retirement accounts, insurance policies, investment accounts and bank accounts are up to date.
Of course, death is certainly not my favorite topic.
But if your loved ones lose you, or you lose your spouse or partner, an unthinkable tragedy will get unimaginably worse if monies you’ve earmarked for family end up in the hands of a stranger.
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1The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.
2Scott Hanson (2011, 2012, 2013, 2014, 2015 & 2016) and Pat McClain (2012, 2013, 2014, 2015 & 2016). Barron's© magazine is a trademark of Dow Jones L.P. The ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors' practices.
3As of 12/20, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $10 billion in total assets under management and administration.
4Barron’s 2020 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors' practices.
✢Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.
✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.
†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.