Don't Get April Fooled!

My 8-year-old reminded me late last month that we were quickly approaching a light-hearted fun holiday. Like St. Patrick’s Day and National Donut Day (a favorite of mine), April Fool’s Day is not a day off from work but a day that brings smiles and laughter to many. My child was gearing up for some good laughs and “gotcha’s” for the family.

While we aim to avoid constant “gotcha” moments in our personal finances, there are usually ways to resolve mix-ups or unexpected surprises when they do arise. However, there are also but a handful of things that cannot be fixed or light-heartedly resolved with an “April Fool’s / just kidding” stance. A time that I certainly don’t want to hear “April Fool’s” shouted out is when I think I’ve been named a beneficiary of a financial account.

When an account holder dies, financial accounts/life insurance policies/ annuities, etc. with named beneficiaries do not require a Will or Trust for it to be distributed to the recipients. In fact, a named beneficiary supersedes Wills and Trusts. This is important because a surviving spouse and/or family member may be anticipating receipt of financial assets, and if someone else is named as a beneficiary specifically on the account, there is no “April Fool’s” fix.

It is because of this non-fixable, not funny situation, at Rather & Kittrell, we know how important it is to periodically review your named beneficiaries. It is especially important to update your named beneficiaries if there have been life changes for you personally and/or your family.

One common example that quickly comes to mind is divorce. An ex-spouse may be listed as the beneficiary of a retirement account or life insurance policy. Beneficiaries do not change automatically when the divorce decree is finalized. A new spouse, adult children, or a charitable organization may be in for an unhappy surprise when the account owner dies, and everyone realizes the ex-spouse will receive the assets.

Another example is when we have blended families that name a surviving spouse as primary beneficiary but do not consider the contingent beneficiaries. Many blended families execute excellent Wills and Trusts to provide for the heirs of both spouses once they have passed. However, if each spouse names only their own heirs as beneficiaries (or contingent beneficiaries) it is easy to bypass great planning and thus accidently cutting out family members.

Personally, I had to remember to change my beneficiaries when I got married and had children. I began my professional career before I was married, so I decided to name my parents as my beneficiaries. When I married Neil, I was sure to name him as my beneficiary. When we had children, I updated my named beneficiaries accounting for my girls. While I love my mom and dad, my financial priority is to care for my family.

The examples of the above are not all encompassing but acknowledge some of the scenarios we have seen and/or helped plan around. As I tell my husband, I don’t intentionally like talking about gloomy subjects such as death and estate planning, but our job here at RK is to ask you these questions so you do not find yourself on the receiving end of an unwanted financial “April Fool’s”!

Amanda Howerton, CFP® is a Senior Advisor with Rather & Kittrell.  She is available at [email protected].