Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Monday, December 04, 2023

All About Beneficiaries

 The following blog post was written by Dierrah McInnis. 

Who will get your stuff when you die? If you haven’t decided, the State will decide for you. Let’s start with some basics:

Question 1: What is a beneficiary?

Beneficiaries are individuals or entities who are designated to receive your assets. You can have a beneficiary on a life insurance policy, a trust, an IRA, or a 401(k). You can also have beneficiaries on bank accounts and brokerage accounts. Any accounts that don’t have a designated beneficiary will go through your will or will be divided according to State law.


Your will should also designate beneficiaries. It is the fall back for any accounts without specific beneficiary designations.


Question 2: Do I need to have a will?

 Yes. Even if you list specific beneficiaries on every account, the will covers personal property and other assets that may not have designated beneficiaries. The will is the back up for accounts that may be missing beneficiary information. 


Not only does a will allow you to name beneficiaries, it also allows you to appoint a guardian for any minor children, name someone to handle your final affairs, and designate special bequests. A will is subject to probate, which refers to a legal process that validates the will and oversees the distribution of assets. On the other hand, accounts with designated beneficiaries bypass the probate process. Remember, accounts with a designated beneficiary supersede your will.


Question 3: What is the difference between primary and a contingent beneficiary?

A primary beneficiary is an individual or entity that is first in line to receive all the assets in an account upon the death of the benefactor.  A contingent beneficiary is an individual or entity that is second in line if the primary beneficiary is no longer living or can’t be located. You can also name more than one beneficiary and specify the division of assets.


Question 4: What does the terms per stirpes and per capita mean?

The Latin word per stirpes means “by branch”, which refers to every person down a family tree beginning from another person. For example, if a primary beneficiary has passed away, their share of the assets would be distributed equally among their children. Usually, this option has to be specified on a form or in your will.


The word per capita means “by the heads”, which refers to assets being distributed equally among all living primary beneficiaries. For example, if a primary beneficiary is deceased, their share is not passed down to their descendants but instead distributed equally among the remaining primary beneficiaries. 


Which option you choose will have a significant impact on how your assets are inherited. Choose wisely.


Question 5: How often can my beneficiaries change?

You may change your beneficiaries as often as you like. We believe you should review your beneficiaries at least once a year, especially if you have a major life event, such as marriage or the birth of a child. All it takes is a phone call, and we'll start the paperwork, get you to sign it, and wait for the changes to take effect!


And now for a beneficiary nightmare story from Nancy...


I am the youngest of 3 children. My mother died in 2021, but my 94-year-old father is still alive and well. My sister died five years ago, and it has been my parents’ wish to pass on her share of their assets to her 3 girls (see per stirpes above).


I am the executor of my dad’s will, but we decided to put beneficiaries on each of his certificates of deposit. In doing so, we hoped to quickly and easily pass on his assets upon his passing. Two years ago, I gathered my nieces’ information, and we made arrangements at the two banks where he had accounts. Recently, we sold his house and needed to add beneficiaries to the new CD. This was our task during the Thanksgiving holidays. We thought it would be a breeze since the bank already had all the beneficiary information. Boy, were we wrong!


We went to a local branch of a long-established Coast bank and found NONE of the CDs had my neices’ names on them. Only my brother and I were listed as beneficiaries. OK, so let’s add them. Seemed easy enough, right?


Except this bank would only allow 4 total names on any one account (one owner and 3 beneficiaries). What?!? I explained State law. I stared at them disapprovingly. I huffed, and I puffed. They wouldn’t budge—said it was a new bank policy. Frankly, I think it was a lack of imagination in their technology department.


I thought of a workaround. What if we put my deceased sister’s name back on that account and marked the “per stripes” box? The branch manager said, “What is that?” I couldn’t believe my ears. Maybe we should send her the full text of this blogpost?

We were stuck. Finally, the only alternative was to remove ALL the beneficiaries and allow these assets to go through the will. This means it will take longer for my dad’s heirs to get their portion, and I will have to be the one administering all the details.


After a couple hours at this unnamed bank, we decided to head to bank number 2. We walked in the door and made our request. We needed to check the beneficiaries on the 2 CDs at this bank. There were several workers there—2 at front desks—but the only person with access to beneficiary information had just left the building. Another WHAT?!?


We could only leave my name and number on a notepad and ask for a call back. Seems efficient, right?


And, yes, they DID call back. All 5 beneficiaries were on the 2 CDs. Whew! We could actually follow State law at this bank. The only problem is that the allocation was wrong, with each getting equal amounts versus a third going to my 3 nieces. This required a second trip to the bank on Friday morning to get new paperwork signed.


The moral of the story? Don’t bank at the big, established Coast bank? Maybe. At the very least, check your beneficiaries on every account each year. Understand how account registrations can change inheritance. Talk to your elderly relatives about their wishes and make sure accounts are set up to match those wishes. If all else fails, consult an attorney.

Getting it right while they’re still with you is much easier than dealing with a tangled nightmare of heirs after the funeral.