Wall Street Steward Blog

What's In A Name?

Me:  “Who would you like to name as your beneficiary?”
Mr. X:  “Ummmm….hmmm….do I have to name someone?”

Me:  “You don’t have to, but you should.  Who is it going to be?”
Mr. X:  “Hmmmmm……”
Me:  “My name is spelled M-A-T-T-H…..”

One of the biggest mistakes investors make is not naming a beneficiary (or beneficiaries) on their retirement accounts (IRAs, Roth IRAs, 401(k)s, etc).  Retirement accounts provide the account owner the ability to name a direct beneficiary, whereas most other accounts do not.  This is something that should be completed and updated periodically

If a beneficiary is not named, then upon the account holder’s death, the assets will be distributed according to their will (if they have one).  This means that the assets will be subject to probate proceedings which can tie up the money for a substantial amount of time (estimated at 9-12 months in SC, check your local state here).  Also, probate costs $$….doesn’t everything involving attorneys and judges?

Either you can decide who will receive your assets in the event of your death, or a court will decide who will get your assets upon said “kicking of the bucket.”  It is your call…and it is that simple.  

Name Someone
If you name a primary beneficiary, then the money passes directly to them and is NOT subject to probate court.  Also, the beneficiary form SUPERCEDES your will, so if you name <enemy> on your beneficiary form and your spouse in your will, Mr. <enemy> will walk away with your retirement account.  This could possibly upset your spouse, you think? 

If you wish to name multiple beneficiaries, that is allowed as long as the total allocation adds up to 100%.  So, if you have 3 children and wish to name each one of them equally, somebody has to get that last .01% (33.33%, 33.33%, and 33.34%). 

Back-Up Plan
In addition to naming a primary beneficiary, it is also highly recommended that investors name contingent beneficiaries.   The contingent bene’s would step to the forefront if your primary bene meets their maker before you do.  Or, as chance should have it, if you and your primary beneficiary both pass away together, then the assets go to the contingent bene(s).  Got all of that? 

IRA Account Holder:  Betty Sue Beth Wilson
Primary Bene:  Billy Joe Jim Bob Wilson 100% (Betty’s husband)
Contingent Bene(s):  Wayne Lee Wilson 50% and Bart Jones Wilson 50% (Betty’s sons)
Account Value:  $100,000

If Betty passes away, then her account would pass directly to her husband, Billy Joe Jim Bob.  If Betty and her husband both pass away together, then her account would split 50/50 between her two sons.  If the husband passes away before Betty, and then Betty passes, then the account is split 50/50 to her sons. 

It is important that primary and contingent beneficiaries are named on your retirement accounts, because if you do not decide who will receive your money upon your death, then a court will decide.  If you are unsure who to name, then pick your favorite charity or church and name them….or better yet, if you have a good friend and want to bless them, name them.

Creative Commons License photo credit: Jack Dorsey