When your life changes, often your finances need to change, too. Marriage, childbirth, remarriage, divorce, widowhood. Women undergoing major transitions face a lot of complex decisions, many of them related to money. Some are “big picture” questions about goals and priorities like reconsidering how, where and when to retire, whether or not to sell your home, and finding or changing jobs. Others are more about the details: updating important documents, opening or closing banking and investment accounts, and other aspects of keeping your financial house in order.
As CEO of a financial firm that works closely with women, I’ve helped dozens of clients sort through these critical issues – both large and small. Together, we craft solutions that fit. And while every woman’s situation is unique, there are some common experiences and lessons. I am launching this new women’s transition blog series to share these themes in the hopes that they will benefit other women.
First up, one of the most important, but often overlooked, financial planning items: beneficiary designations. Next time, we’ll tackle basic estate documents and how to ensure you’re protecting yourself and your assets.
Making Sure Your Assets Find the Right Home
Although over 60% of women would rather discuss their own death than money*, I’m pretty sure death still isn’t high on the list of favorite dinner party topics. The practical financial aspects of death— estate plans, wills, and asset beneficiaries—probably aren’t so compelling either. But they are vital, especially the last one and especially for newly divorced, remarried or widowed women.
Here’s why: the beneficiaries you name for major assets like retirement accounts, life insurance policies and annuities legally overrule what’s written in your will, if you have one and it’s up to date. To make sure your money goes to the right people when you die, you’ve got to keep your beneficiary designations current with your life.
Review Your Accounts Regularly
At O’Brien, we review our clients’ beneficiaries yearly—or immediately in the wake of a significant life event. As your life evolves, your intentions can change. If you’re newly single or widowed, you’ll want to replace spouse beneficiaries with others. Recently married, remarried, or just had children? All good opportunities to review your designated beneficiaries. It’s something you want to do whenever you experience a major transition. Oh, and even though selecting a beneficiary is usually part of setting up a new account, it’s not always required. Many people overlook this step and never get back to it. A regular review with your financial advisor minimizes the chances that this will be you!
Choose a Beneficiary, and a Back Up
Since life doesn’t always happen as planned, I recommend choosing primary and secondary beneficiaries for all accounts that require them. For example, what if your primary beneficiary dies before you and you don’t remember to update the designation? Or if you named a charity as a beneficiary a long time ago, the organization may no longer exist.
Even when the situation seems simple—you want your children to inherit everything, for example—you should still name beneficiaries. Financial accounts without beneficiaries become part of your estate when you die. In those instances, the plan document that governs the account, or federal or state law may dictate what happens to your money. And if you haven’t kept beneficiary designations current with your wishes, the money could go to the wrong people, like an ex-spouse. Certainly not an outcome you intend or one you can control from beyond the grave!
Good News: Designating and Updating Beneficiaries is Easy
In most cases, you can name or change your account beneficiaries online. Simply log into your account and find the beneficiaries section on the website. You’ll see an option to name or update the entry. Then supply the name, relationship and date of birth for your designated beneficiaries. For some accounts, you may need to provide additional details like a beneficiary’s Social Security number and contact information. Finally, decide how to split your account balance among primary beneficiaries, and name secondary or back-up beneficiaries. That’s it.
Four Key Takeaways
Naming and regularly reviewing your beneficiaries is probably not at the top of your “most wanted” list—but it is essential, especially for women undergoing life transitions. At these critical times, checking your beneficiary designations can provide peace of mind that you are taking care of the people and causes most important to you. Here are my top takeaways on the subject:
- Review your retirement, bank, brokerage, life insurance accounts and real estate titles periodically and after all major life events to make sure beneficiary designations still reflect your wishes.
- If you don’t name beneficiaries, the courts may designate them via federal or state law, or default provisions written into the account documents themselves—and your assets may not go to the people you want.
- Plan administrator errors can creep in when, for example, systems are changed, so you should check your beneficiaries regularly even if your life hasn’t changed.
- Remember that for many accounts and assets, beneficiary designations legally outflank any instructions in your estate plan, will or divorce decree. This is why it is so important to keep them current.
*I learned this when researching my “money taboo” blog last spring. In case you missed it, here’s a link to the article on our website:
O’Brien Wealth Partners