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Estate Planning 101 – Name Beneficiaries on Bank and Investment Accounts

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I recently had the opportunity to address a basic estate planning issue that may often be overlooked. Estate planning and family planning is a daunting task and by nature, it is difficult to get to the finish line. Wills are complicated, trusts are complicated, personal representatives and trustees are complicated and, most of all, the ultimate division of assets to family and friends is complicated.

With all of this said, I have advised clients to always address the basics until they are ready to deal with final life planning with estate legal counsel. I recently had a client that passed away and while this person had a very detailed will, a majority of the person’s liquid assets, including “single name” bank accounts and investment accounts, had no beneficiaries assigned to the accounts at death. Therefore, these assets are now in the probate process.

All of this client’s thoughtful planning for her family came to a halt because of a lack of properly named beneficiaries on her bank accounts, investment accounts and retirement accounts.

What is the lesson learned here? Simply naming beneficiaries for each of your bank accounts, investment accounts and retirement accounts is perhaps the simplest, and most important, step you can take to protect your assets and ensure they are passed properly to the intended recipients following your death. Often times a bank account allows for a beneficiary to be referred to as “payable on death,” while an investment account allows for a beneficiary to be referred to as “transfer on death.”

The intended beneficiaries are entitled to receive the entire balance of the available funds from a “payable on death” account or transfer a “transfer on death” account to their own name without waiting for the reading of a will or the release of the estate by a probate judge or administrator. The beneficiaries can secure the funds simply by presenting a copy of the account holder’s death certificate and valid photo identification to a bank officer.

Finally, it is vital that beneficiary designations are reviewed at least every few years, but certainly after you experience a life-changing event, such as a marriage, divorce, family trauma, birth or death of a loved one. In addition, when you change a job, beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA.

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