Why is a beneficiary election important?
By Duane J. Silbernagel
A beneficiary is a person or entity that is elected by the account owner to receive specific types of assets, such as life insurance or retirement assets. Single individuals are generally permitted to choose anyone as a beneficiary. Married individuals may be bound by specific state laws dictating who you can choose. In most cases, you may choose multiple beneficiaries, if you wish.
Payments to beneficiaries will follow this order: Primary (1st), Secondary (2nd), Tertiary (3rd), etc. These designations will only result in funds being transferred to an individual listed after the primary beneficiary if those designated before are unable to collect the assets. Also, depending on your state’s age of majority, one may opt to elect a custodian for funds if a minor child is potentially receiving assets.
Designating a beneficiary is generally very easy. One specifies the individual(s) you’d like to transfer the property to. In the case of retirement accounts and life insurance proceeds – assets will bypass probate. Probate could potentially be a lengthy and expensive process, so being able to transition assets in a manner you choose, outside of probate, can be a very powerful tool.
Electing a beneficiary is done at the owner’s direction, remaining in complete control of the asset until death. As the owner, you have the authority to change the beneficiary at any time you wish.
Failure to elect a beneficiary, typically results in your estate being elected as the beneficiary for that asset(s). This can have tax implications so please consult with your tax advisor regarding your personal situation.
Beneficiary elections should model the exact distribution the account owner wishes, as this is the most efficient way to ensure that the assets are divided the way you want. The elections made on assets should mirror individual estate plan documents (the will or trust).
Beneficiary information should be updated or reviewed on an annual basis at a minimum. More urgency should be given after a change in marital status or a death of a beneficiary.
While this can be an easily overlooked aspect to your financial picture, it is critical to keep beneficiary designations up-to-date to transition an estate with as few hiccups as possible.
To be continued next week.
If you’d like to find out more about, or how to contact, me visit my website: www.duane.wrfa.com
This article is meant to be general in nature and should not be construed as investment or financial advice related to your personal situation. Waddell & Reed does not provide legal or tax advice. Please consult with a professional regarding your personal situation.
Duane Silbernagel is a Financial Advisor in Lincoln City, Oregon offering securities through Waddell & Reed, Inc., Member FINRA and SIPC. Insurance products are offered through insurance companies with which Waddell & Reed has sales agreements. He can be reached at (541) 614-1322, via email at DSilbernagel@wradvisors.com.