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Beyond Investments- Estate Planning

Published by: Amanda Howerton, CFP® Date: July 31, 2020

Talking about estate planning is often a client’s most dreaded planning topic. It’s common for new clients to reveal to us they have procrastinated discussing estate planning for fear of vocalizing unpleasant scenarios or concerns. Trying to decide who makes decisions for you regarding health and finances, who will take care of your children and how to transfer your assets may feel like a morbid task. Add in family dynamics of all shapes and sizes, and the conversation is ripe for disagreements, stress, and anxiety.

It’s ideal to have a sound plan and an astute estate attorney who asks about your goals and the challenges that may arise when implementing those goals. It also helps when your estate attorney and financial advisor can help take the legal language and put it into plain English. This way, everyone involved has a clear understanding of what will happen at your passing.

Some of the legal terms that appear on many account documents, including retirement accounts and individually owned brokerage accounts, are Primary Beneficiary and Contingent Beneficiary. These terms dictate the new owner of the assets to which they are applied.

When contingent shows up as a beneficiary, it means “If not person A, then person(s) B.” The keyword in this phrase is “then.” When you name a primary beneficiary, that person is the first in line to receive your inheritance. If that primary beneficiary has died before you, then the inheritance goes to the contingent. Many clients believe that the contingent beneficiary will receive the inheritance after the primary beneficiary passes. While it makes sense intuitively, this is incorrect.

If the primary beneficiary is alive when the client/owner passes, the inheritance becomes their (primary beneficiary’s) money to do with and name whomever (as a new beneficiary) they so desire. The primary beneficiary may choose to name the original contingent beneficiary as the new beneficiary; however, there is no obligation.

Depending on the client’s intent, they may wish for the primary beneficiary to have this freedom. If there is a blended family or if there is family legacy money intended only for specific individuals, additional planning is needed to ensure the contingent or desired “next in line” beneficiaries receive their share.

As an example, at this time, I have named my husband my primary beneficiary and my children as my contingents within my estate planning. If I inherit money from my family and then pass before my husband, he inherits all of my assets. If, after I pass away and my husband remarries, he may choose to name his new wife as the primary beneficiary of his money, which now includes all of my inherited assets. This is entirely up to him. If the new wife outlives him and inherits all of his money, we may have accidentally disinherited our children (unless step-mom is kind-hearted and names our kids as beneficiaries).

A good estate plan and proper beneficiary naming can help address and plan for these issues. Whether it is incorporating trust documents to pass along legacy money or opening separate accounts with different beneficiaries, a little work, and understanding of goals and terms can go a long way. If you have been putting off estate planning, or wish to revisit your current plan, please let us know. We are here to help.