Beneficiary mistake #1: Misunderstanding Asset Distribution on Death

Many assets allow you to name a beneficiary, that is, whom you would like to receive the asset in the event of your death. Life insurance policies and retirement accounts are common examples but some other account types such as bank accounts and non-retirement investment brokerage accounts also may allow you to name beneficiaries through a Pay on Death (POD) or Transfer on Death (TOD) form. While these forms are generally straight forward, they often lead people to make inadvertent errors. We have identified six common mistakes people make when preparing for the distribution of their assets after death. This is PART ONE OF SIX.

Failure to understand how assets will pass on your death
The first step in ensuring your assets are distributed according to your wishes is to understand how things pass when you die. People tend to put a lot of thought into writing their wills, only to find out that their will doesn’t actually control any of their assets! Generally speaking, anything that is jointly owned with another person as Joint With Rights of Survivorship (JWROS) will go to that person directly. Anything that has a beneficiary named will be paid directly to the beneficiary(ies). In these two situations, the will is not even considered in the distribution. The Will is only used when an asset is owned SOLELY by the decedent and no beneficiary is named. So if a husband and wife own their house, cars, and bank accounts together and have beneficiaries named on their life insurance policies and retirement accounts, they have nothing to probate and the Will has no control over any of their assets.

Here is a common example: Jane Doe has four children- John, Jack, James, and Julie. Jane’s will leaves everything to all four of her children in equal shares (25% each). The will also states that if any of her children dies before her, that child’s share is to pass on to his/her children, Jane’s grandchildren. Jane has an IRA and life insurance policy where she named each of her four children as beneficiaries at 25% each. Jane is getting older and decides to add her daughter’s name to her bank checking and savings accounts to make it easier for her daughter to help her out with paying bills and other financial transactions. Unfortunately, Jane’s son, John, passes away before her, leaving behind a wife and four children of his own.

Upon Jane’s death, Julie will get 100% of the bank accounts, because she is the only surviving owner. And the life insurance policy and IRA will be divided equally between Jane’s surviving children, Jack, James and Julie. Let’s say all four accounts (checking, savings, IRA, and life insurance) had the same amount of money in each. Julie would end up getting 66% of Jane’s assets while Jack and James would each only get 17% and John’s children would get nothing.

Had Jane known that her will would not control any of her accounts due to the joint ownership and beneficiary designations, she could have planned differently to ensure all four children got equal shares of Jane’s assets.

Being aware of this type of common mistake can help you better prepare to ensure your wishes are followed in the event of your death. At Kramer Wealth Managers, we can help you coordinate with an estate planning attorney to make sure your estate goals and financial planning goals are in line with your personal WealthPath.

While the tax or legal guidance provided is based on our understanding of current laws, the information is not intended as tax or legal advice and should not be relied upon as tax or legal advice. Neither Osaic Wealth, nor its registered representatives, provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.

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Adrianna Rocha

Client Relations Representative

240-379-6929 V
240-439-6889 VP
512-379-6909 FAX

Adrianna Rocha joined Kramer Wealth Managers in 2021.

Adrianna is responsible for client experiences and service. As part of the customer service team, she strives to help and provide top-notch service to our clients. As part of her role, she communicates with clients through videophone, schedules client meetings, prepares and processes forms, and gathers information for our advisors.

Adrianna Rocha graduated with a Bachelor of Arts in Communication Studies from Gallaudet University in 2017. Before she joined our team, she worked in the customer service industry for nearly a decade. She excels in human-to-human relations and takes pride in not only her own accomplishments, but her clients’ as well. Adrianna enjoys chatting about her slight obsession with dogs, houseplants, essential oils, and food: especially Mexican food! She is also a proud fur-mama to her beautiful Aussie-mixed pup, Ziva.

Adrianna is not registered with Osaic Wealth.