With the halfway mark of 2018 nearly here, now is the perfect time for a mid-year financial review. Conducting these simple checkups can help ensure you are on the right track and progressing toward your financial goals.
A financial review means something different to everyone, but regardless of where you choose to focus, consider spending a few minutes analyzing and updating the beneficiary designations associated with your retirement and insurance accounts. Throughout my time as a financial advisor, I’ve seen far too many instances of outdated beneficiaries levy a significant amount of stress and discomfort on widowers and their loved ones. While this may seem like a simple task, it is one that is regularly overlooked.
Here are a few things to keep in mind as you work through the process:
The importance of beneficiaries
A beneficiary is essentially the recipient of funds in the event of a death. Most important financial accounts, retirement and life insurance, contain a slot for a beneficiary, which the account owner or policy holder must designate at the onset. A majority of the time, people choose to list their spouse, children, or relatives as the beneficiary.
However, more often than not, a beneficiary is named and the paperwork filed away, only to be dug out years or decades later when something happens. This can result in a scenario where the beneficiary is no longer the appropriate party to receive the benefit, which often creates a confusing and stressful situation for all parties. It is important to keep in mind that whomever is listed as the beneficiary on the account at the time of death receives the benefit. If you are thinking that your will can designate a beneficiary, unfortunately that is not the case; wills and other end-of-life documentation do not cover retirement and insurance benefits.
When to update
As a general rule of thumb, beneficiaries should align with your personal life and are most commonly subject to change following significant life events: marriage, divorce, or death. For example, a married woman who lists her husband as beneficiary on a life insurance policy will likely want to update the policy beneficiary to a parent, sibling or second husband in the event of divorce.
Another common situation involves adult children who discover they are not listed as beneficiary upon the death of a parent. Many accounts and policies forbid naming a child until he or she is 18. Therefore, parents often list relatives or close loved ones for the time being. Although it may be nearly two decades later and far out of mind, it’s crucial to circle back and make that update once the child becomes a legal adult.
How to update
The review and update process is quite easy. If you choose to stay the course with the beneficiaries as they are, consider notifying those currently listed to remind them of the responsibility. For those who want to make a change, either an employer or financial institution can generally handle the update at your request. Again, be sure to notify all new beneficiaries and thoroughly explain your vision (especially to young adult children who may be unfamiliar with the concept). Finally, set reminders to check the status of beneficiaries at least every year or two. That way, the simple task doesn’t become lost in translation moving forward.
Naming a beneficiary is a critically important tool. With a bit of proactive maintenance and planning, you can help ensure your loved ones effectively receive the benefits that were intended for them. iBi
Patricia Cutilletta is an Executive Director and Financial Advisor with the Wealth Management Division of Morgan Stanley in Chicago.