13 Jan Lessoned Learned:Who Will Get Your Money When You’re Gone?
What would you do with $300k? I have a client whose beneficiaries have been pondering the same question for over two years! Why? Because my client didn’t want to sign a form.
Crazy, right? But it’s a true story. How can you keep this from happening to you and your family?
First, understand that a beneficiary is a person who derives advantage from something, especially a trust, will, or life insurance policy.
Whenever you set up a checking, savings, 401(k), or IRA account, you should name a beneficiary on each account. Most people believe that when they pass away, their will will take care of their assets. A will does provide direction for your assets, but each financial institution will require paperwork to release your assets. This process is called probate (or official proving of a will).
The probate process could take two to three years, depending on the size of the estate and the court system. Probate can be one of the most gruelling processes that a person will ever go through.
The Problem
Back to my client: for several years, I sent out the beneficiary forms to him. He ignored all my requests several times, intending to figure it out later. He procrastinated and didn’t send the form back to my office. This went on for 10 years! I urged the client to name someone on the beneficiary form—siblings, a neighbor, a church—anyone! But there were complicated relationships involved with a second marriage, and he and his spouse had no children. He had five brothers and sisters and extended relatives, too, but they were worried about leaving out a family member or offending someone. I suggested establishing a trust, but he declined because of legal fees.
The Result
After his death, his family had to deal with an unfamiliar attorney and take this $300k through probate all because he didn’t fill out the form and designate a beneficiary.
If you’re not familiar with the challenges of the probate system, let me enlighten you. First, the family must hire an attorney and provide them with a list of all your assets. Next, the attorney contacts each financial institution about your assets going through probate. Then the financial institution freezes your assets until they establish an executor of the estate.
Then the lengthy probate process begins. While the attorney is working on obtaining an executor, your assets are frozen at the bank. If those assets are in the stock market, your adviser can’t place trades until they are transferred into the estate account. Imagine if the market dropped 40% (as it did in 2008), and your adviser couldn’t sell your stocks, bonds, or mutual funds? You (and your family) would lose thousands of dollars!
The Solution
If you want to take good care of your family and keep them from having to wait years to have access to your assets, the solution is simple:
1. Make sure you have a beneficiary on each of your accounts.
2. Update beneficiaries yearly.
3. Update your will every two to three years.
4. Establish a trust.
