Beneficiaries: Why are They Important?

A task often overlooked by many is making certain that a beneficiary is named for important financial assets. If you love your loved one, do it now. Get your affairs in order.

It makes no difference how old you are. This must be done for a number of reasons. The No. 1 reason is to make sure that you have provided for your loved ones. A second reason is that your wishes will be followed.

If you don’t do this, the state will decide. Your loved ones will need to show proof that they have a right to claim the property.

This is a process that many do not want to encounter, but I can guarantee you that you will not be around forever, so make your departure a little easier on your loved ones. Set things up for them.

So, let’s dig in and talk about beneficiaries.

What or Who is a Beneficiary?

A beneficiary is the person named on the financial document who will inherit the property, such as a bank account or a life insurance policy. This will be the person or persons who will receive the proceeds. Sometimes this can be a corporation rather than a person. It can also be a trust.

Naming a beneficiary will automatically ensure that the property is passed along to the person or persons you want it to pass on to.

Primary and Secondary Beneficiaries

In many cases, the primary beneficiary will be your spouse. This is very common. What many folks neglect to provide is what is known a secondary beneficiary. A secondary beneficiary would be the person next in line to receive the proceeds.

For example, I have named my wife as the primary beneficiary, but should I survive her, I have named my kids as the secondary beneficiary.

When your life situation changes through events such as a marriage or divorce, it is important to update your beneficiaries. Keep them current.

Identifying Assets

Start at the beginning. Make a list of all your financial assets, including bank accounts, retirement accounts, life insurance policies, health savings accounts, your will and any trust you may set up.

Once you have this list, then it is time to begin. Trust me, your list will be incomplete. Every time I think I have it all taken care of, some other account that I have forgotten about appears. Stay diligent and get the beneficiaries on them all.

Once you have named beneficiaries, these assets will basically automatically pass on to your loved ones exactly as you have directed.

This may not be the most pleasant task, but I assure you, it is a necessary one. Doing this will make things a bit easier for those you leave behind.

Other Considerations

Create a will. This is important so that your wishes can be carried out. A will directs how you want your final affairs settled. If you don’t have a will, the state will decide.

Having a will is extremely important if you have minor children.  A will directs how the kids will be cared for should you and your spouse perish together. Don’t let the state decide.

How about all those electronic files and passwords? Will your beneficiaries have access to them? How will they access these accounts?

I have created an electronic file of all my accounts and passwords. On a periodic basis, about twice a year, I give copies to my kids because these are constantly changing. They include such things as emails, professional organizations and other sites of that nature, along with accounts that have been set up for automatic payment like cell phones or Netflix.

Provide the Roadmap

It will be difficult enough for those you leave behind when you are gone, so make it a little bit easier for them. Don’t make it a treasure hunt. Lay it all out for them. Tell them where everything is and how to access it. You can also give them specific instructions.

It could also be a good idea to have a formal meeting once a year to review everything with them. Things do change over time and it is always good to keep it fresh.

Final Thoughts

While this may not be the most pleasant of tasks, it could very well be one of the most important. We all work hard for what we have and I, for one, want to make sure those I leave behind will find it all and benefit from it.

I have personally dealt with both a treasure hunt and a well-laid out plan. While neither one was pleasant, the treasure hunt was more painful. QCBN

By Steve Calabrese

Steven Calabrese, CPA, is the CFO of West Yavapai Guidance Clinic. He also is the owner operator of a website known as thebiweeklyadvisor.com, where such topics as budgeting, investing, paying off debt and goal setting are discussed.