Unintentionally Disinheriting Your Children
About the author: Jeff Martin is a financial advisor at Cornerstone based in Reno, NV. He enjoys being able to help clients create customized strategies for their portfolios based on their unique financial goals.
Unintentionally Disinheriting Your Children:
Know Before It’s Too Late
Beneficiary forms are a very simple document that frequently are not given the time and attention they deserve. I have heard everything from “my previous broker said we would revisit it later”, or “I filled my forms out at account opening, but I don’t remember who is listed”, or “I am pretty sure I have my family listed”. A very simple document, that has some very serious repercussions.
In my mind, beneficiary forms are much like a fire extinguisher in that, by the time you find out it doesn’t work properly, it’s often too late.
Some time ago, I had the opportunity to meet with a couple who were recently married and enjoying the newlywed life. This was their second marriage, and both had children from the prior marriage. Our initial conversation began with them sharing that they wanted some help in putting their financial plan together to step away from work, and transition from newlyweds to newly retired. They proudly shared that they had already taken proactive steps and listed each other as the beneficiary on each respective IRA account. That’s where the buck stopped (quite literally) where the beneficiary forms were concerned.
They were ahead of the game since they were proactive about updating their forms due to a life event, but they came very close to having one of their primary financial goals completely unintentionally and unnecessarily blown up.
Aside from being able to step away from work to enjoy their time together, travel, and spend time with family, it was a primary objective of theirs to ensure they each left any remaining assets to their own children.
By listing each other, and not having their children listed as contingent beneficiaries they would have unintentionally disinherited their own children. By listing the spouse as primary beneficiary, without contingent beneficiaries, those assets pass to the surviving spouse upon the primary account owner’s death. Perhaps, the surviving spouse attempts to follow the deceased wishes, and “give” the assets to the children. This would create a whole other basket of issues from a tax perspective.
If both were to pass away at the same time, the accounts would pass to the listed beneficiary’s family (not each other’s own children). The other plausible scenario would be that one spouse passes away, the assets pass to the surviving spouse, and unless the surviving spouse lists the deceased spouse’s children as a beneficiary on the inherited account, their children are disinherited again.
This potential catastrophe was easily avoided by having a thorough conversation, listening to their goals and objectives, and not rushing over the very simple, yet critical document.
People spend their entire lives saving and accumulating wealth, only to have the transition of those assets upon passing, not go as intended in some cases. I urge you, take a few minutes, have a conversation with your advisor, and review the beneficiary forms on your account to ensure they are current and up to date, and will be executed according to your wishes. Knowing your fire extinguisher works before it is needed should help you sleep a little better at night.