Beneficiary Reviews: Extremely Important, but Often Overlooked

Sam Payne, RICP, VP Business Consultant


Beneficiary designations are incredibly important, but often misunderstood or not understood at all by those who are preparing to leave a legacy.  

Many people believe that a trust will handle the distribution of assets like life insurance, IRAs, retirement plans, annuities, and some employee benefit plans. In fact, these assets are all controlled by beneficiary designations. Understanding how to properly name beneficiaries, and how to avoid common mistakes in beneficiary designations, is key to ensuring that assets end up where intended.

If you don’t designate a beneficiary to receive these assets after your death, it’s possible that the assets will be distributed to someone other than who you intended. For example, some custodial
agreements will automatically default to the spouse, and if there is no spouse, then to the owner’s surviving children, and then to the estate. This is a helpful default in the case of no beneficiary designations, but it doesn’t ensure your assets will go to the person you would have chosen.

Our financial advisor role gives us an unparalleled advantage to assure that our client’s legacy intentions are fulfilled.  A simple but incredibly important part of planning is to make sure we have a conversation about those desires with our clients, and follow-up by reviewing all beneficiary designations on accounts that have a beneficiary designations possible.  The most common accounts or policies that we will have in our view include Life Insurance and Annuities. But don’t stop there.

In addition to reviewing the obvious accounts, spend some time reviewing bank checking and savings accounts, retirement accounts, bonds and investment accounts for “Transfer on Death” beneficiary designations. 

In reviewing these designations you can help your clients stay current and avoid unintended consequences. Failing to update these designations after life events such as births, marriages, divorces or other changes in relationships or family dynamics may result in either assets being distributed to unintended recipients, or failing to be distributed to someone you did intend to include but never got around to including.

Some of the common beneficiary designation mistakes, aside from not naming one at all, would include:

Naming the estate as beneficiary – while this may eventually result in your heirs receiving the assets you intended, it is not the most efficient way to do it.  This can also result in greater costs to the estate in the form of taxes and probate costs, and provides substantially less flexibility when it comes to how and when the assets are distributed.

Naming a trust as beneficiary – While this is possible, the unintended consequences of naming a trust as beneficiary for some accounts, if realized, may be substantially greater than the decedent ever intended.

For example, designating a trust as the beneficiary of an IRA can be an effective estate planning tool.  However, this already complex topic has become even more complicated by the passing of the Secure Act. It is effective only if all the parties involved—especially the IRA owner, the IRA custodian, the trustee of the trust, and any attorneys representing the beneficiary—agree on the interpretation of the provisions of the trust and applicable laws. Conflicting interpretations could result in a delay of disposition of the assets and can be quite frustrating for those involved.

Naming minor children as beneficiaries – If minor children have been named as the beneficiary of your life insurance policy, then it can become legally complicated.

Minor children cannot inherit money directly. Instead, the state would appoint a legal guardian if you hadn’t done so, which is a lengthy and costly process. That guardian would then determine how the money is managed and spent—and it may not coincide with your wishes.

If you want the money to benefit a child while the beneficiary is still a child, then you must set up a trust and appoint a trustee. The simplest way is via the Uniform Transfer to Minors Act, which is free — you just appoint a trusted, responsible adult to handle the money on the child’s behalf.

As you can see, naming beneficiaries is incredibly important, and designations should be reviewed on a regular basis.  I believe, as we approach the end of the year, the time to hold beneficiary reviews with your clients is now.  By having the conversation, you will be able to identify their wishes, educate them on the importance of proper beneficiary designations, and assure their stated desires are fulfilled. 

Living a Life of Significance: How Legacy Planning Diverges from Estate Planning

Bruce Beaty, VP Business Consultant


What Is Estate Planning?

The arranging for the disposition and management of one’s estate at death through the use of wills, trusts, insurance policies, and other devices.

Therefore, Estate planning is about death. Death, taxes, probate (avoidance), courts, attorneys, accountants, executors, trustees, documents, fees, delays, fighting and frustrations. Estate planning can also infer that one has an estate. The implication then is that estate planning is reserved exclusively for the wealthy.

Legacy planning however, used as a synonym for estate planning, carries a different connotation altogether.

“A Legacy is what you leave behind in others; the planning we are doing right now gives them the capacity to act on that gift.”

Levi Sherley, Asset Advisor

An important question that we begin asking ourselves as humans more frequently with each passing year is something along the lines of, “How can I make a positive impact in this world beyond myself and my end date?”, and “How can I make life easier, better, and more significant for my child, community, or even strangers I may never meet?”

You see I believe we have a moral obligation to help as many people leave a legacy of significance for their people. Yes this means good estate planning (for everyone who has any level of assets) but it is so much more.  Let’s close on what this really means.

Legacy Planning consists of the following:

The Estate Planning Component:

  • Properly funded Trusts to avoid probate.
  • Non-Trust Assets properly structured with POD, TOD and updated beneficiaries.
  • Well-structured Wills, designating important items going to the right people.  (Imagine the family wars created when people decide to let their heirs sort it out!)
  • Advanced Directive so difficult decisions do not have to be debated by loved ones.
  • Financial Powers of Attorney so that important transactions can continue if someone is incapacitated. 
  • Healthcare Power of Attorney designating who should make important decisions if my body quits before I do.

The Legacy Component:

A Family Love Letter allows our clients to speak love into the hearts of their families and leaves instructions as to their values and wishes.  A powerful part of this message could include, “Lessons I have learned about money and what I want you to know about the gift you are receiving.” 

This final note is an opportunity to right a wrong that could just never be addressed on this side, or to kindly and gently encourage good behavior.  An example could be, “Johnny, I’m so proud of you for staying clean, and your trust will allow you to keep making great choices and accessing your inheritance every five years.  Keep it up!”

The bottom line is this: Making an impact beyond ourselves can be done without resources by simply being a wonderful person, but the effect is multiplied exponentially with capacity.  Maximize that capacity for your clients by implementing all the above estate planning protections and then add in the following.

Life insurance:   Leveraging a larger death benefit for heirs turning small dollars into BIG tax-free dollars.

Living benefits: (Life Insurance, Annuities, and LTC) Keep the clients in the comfort of their own home and accessible to the family as long as you can while mitigating estate shrinkage as long as possible.  These types of resources can make a huge difference in their care experience, and quality of life towards the end.

Lifetime income that they cannot outlive.  I love Tom Hegna’s idea of creating a paycheck and a “play-check” for life. If we all started working with our clients to designate one check every month for joy, even just $1000 to spend on something fun, to give it to someone to impact their life, to go see a child or grandchild, or whatever.  Can you imagine what a Legacy your clients will be living while they are alive to see and enjoy it?   Give your clients permission to spend! Make it a goal. How about we create lifetime inflation-proof income with all the qualified money and buy a big old life policy to fund the family Legacy?

I guess what I am saying is that if we provide all the protections, spend the right monies at the right times, and do this thing right, the Legacies your clients will leave behind will change the future for generations to come. 

Think about this, why does the name Rockefeller still carry so much sway today?  John D. passed away almost a century ago.  His name and impact is his Legacy.  What’s yours?