16 May

Spring Planning

May 16, 2011


Each spring, thousands of people take part in the ritual known as “Spring Cleaning.” Rugs are shaken out, window and door screens are sprayed with water, and the garage gets a much-needed sweep. This creates a sense of cleanliness and new beginnings for the upcoming summer season. However, what some people fail to realize is that “Spring Cleaning” can also mean starting fresh or “cleaning-up” other areas of your life.

When was the last time you prepared a snapshot of where you stood financially and what accounts and policies you hold where? Failure to do this could leave your loved ones scrambling in the case of an accident or an expected death.

When I talk about a snapshot, you may assume I am talking about dollars and cents. It is important to know the numbers, but equally important is making sure that the contracts and documents you have in place conform to your future goals. What you may have intended in the past can change, just like the weather.

One important “Spring Planning” item that should be on your list is reviewing your wills and other estate documents, including your beneficiary designations. Besides a home, modest amounts of cash, stocks and mutual funds, the bulk of many people’s estates is in life insurance policies, 401(k) plans, IRAs or other retirement plans. Life insurance and retirement plans REQUIRE you to designate beneficiaries. By assigning proper designations, you will spare your family many complications and frustrations at your death, and they could save substantially on unnecessary taxes and administrative costs.

Here are some considerations to keep in mind while choosing a beneficiary:

  • Decide who should be your primary beneficiary.
  • Select secondary and alternate beneficiaries if your primary choices do not survive you.
  • Determine when benefits are to be paid out to your beneficiary(ies).
  • Coordinate beneficiary designations with your will, trust, and overall estate plan.
  • Keep a copy of your beneficiary designations with your will, trust and durable power of attorney.
  • Review your designations periodically.

A beneficiary designation allows you to transfer wealth without going through probate. Whereas most individuals will designate their spouse as primary beneficiary and their children as contingent beneficiaries, there is still room for error when unexpected events occur. The death of a beneficiary or a divorce may change your mind as to whom you would like your assets to transfer to at death.

For instance, in the event that a beneficiary predeceases you, who will receive their portion of your assets, and in what percentage? With a per-stirpes designation, the share the beneficiary was entitled to receive will go to his/her heirs. So if the deceased eneficiary was to receive 50%, that 50% will now be split amongst the deceased beneficiary’s heirs. Using a per-capita designation, the share the beneficiary was entitled to will go to his/her heirs, but the allocation is handled differently. The assets will be split equally amongst all remaining primary beneficiaries, and any children of the deceased primary beneficiary will receive nothing. As you can see, this is quite a different outcome compared to the per-stirpes designation, where the children of the deceased primary beneficiary inherited their parent’s portion of the assets.

Spring Planning Chart Graphic

Other reasons to review your will and other estate documents include the following:

  • Are any of the individuals named in your documents deceased?
  • Are there additional individuals that you would like to include (e.g., birth or adoption)?
  • Have you, or anyone named in your documents, gone through a divorce?
  • Has there been an acquisition or a disposition of assets since your documents were written?

You spent all this time cleaning your house to get ready for spring and summer, right? After all, you get close to 6 months of really nice weather, so it was worth it. How many hours have you spent reviewing your beneficiary designations? How about your will and other estate documents?

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