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Beneficiary mistakes can cost clients a fortune

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Beneficiary designations are an important issue in determining where certain assets of an estate end up. Many think a will or trust is what determines where everything goes at death. This is not necessarily so and can be a big mistake to make this assumption. A last will and testament generally determines where things that are titled in your name go. Things such as real estate, cars, bank accounts, and stocks and bonds are included in a will. It is important to realize some assets are owned by contract rather than title that don’t pass through your will.

Assets that are financial contracts can be annuities, life insurance, IRAs and any other type of financial accounts. Each of these contracts may have a beneficiary designation. This designation says who you wanted to name to receive any proceeds at death. If a will says everything goes to Cousin Susie and a client’s beneficiary designations say Uncle Ed, and all of those assets are in contract assets, it may all go to Uncle Ed. Many times what happens is that beneficiary designations were never updated or changed.

As a financial professional, now is a good time to review your client’s forms and make sure they are up to date. Don’t wait until life-changing events occur with your clients and don’t assume the attorney or the client took care of it. It is your job as the professional who set up the account to keep the forms updated. Remember, forms cannot be changed after a death occurs; clients get no second chance to get it right. They need you to help keep their forms up to date. Most attorneys do a great job but often focus on probate assets and don’t review financial contracts outside of probate because they are typically handled by the financial professional.

If your clients have grandchildren, another important issue to review is the default language on beneficiary forms. Do you know the difference between per capita and per stirpes? If not, pay attention.
In our experience of meeting with potential clients, we see 90 percent of families have mistakes when it comes to their beneficiary forms. Not only is it an added value by providing a review to current clients, it also gives you, the financial professional, an opportunity to review clients’ and prospects’ entire financial pictures. So it is a win-win to review beneficiary designations.


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