Ep. 249 – Beneficiary Best Practices in Retirement – A Yearly Check-In


In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Nick discuss beneficiary best practices and what’s discussed in a typical beneficiary’s meeting. Things can change in a year, and that’s why we believe it’s important to update or change beneficiaries annually.

Listen in to learn how we prepare for the beneficiaries’ topic before the client meeting. You will also learn how primary and contingent beneficiaries work and the difference between per stirpes and per capita beneficiary designations.

In this episode, find out:

  • Understanding the topics covered in a financial planning strategy meeting and its benefits.
  • How we prepare for the beneficiaries’ topic before the client meeting.
  • The reasons why we advise updating or changing beneficiaries annually.
  • The beneficiary designation’s structure – how primary and contingent beneficiaries work.
  • Per stirpes – designating how funds will flow down the family lineage if the beneficiary is deceased.
  • Per capita – designating funds to go across to other beneficiaries if any of them is deceased.

Tweetable Quotes:

  • “The more beneficiary designations you can have added to your accounts, the simpler the estate process is going to be when that terrible time comes.”– Murs Tariq
  • “Per stirpes is a specific beneficiary designation that you can put on your investment accounts that designates that funds will flow down that specific family tree.”– Nick Hymanson


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To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil: Welcome to Secure Your Retirement Podcast. We are excited about today’s topic. We actually have Nick Hymanson, who is another certified financial planner in our office with us on this episode. And this episode is really focused on beneficiary designations, but this all kind of comes out of a particular meeting that we do with our clients every year, which we call our financial planning strategy meeting. And there’s a lot of work that goes into this meeting, there’s a lot of things that come out of it. It’s extremely beneficial. But I thought we could kind of start out, Nick, by if you could just kind of say what is a financial planning strategy meeting and what kind of happens in there?
Nick Hymanson: Yeah, so in the financial planning strategy meeting, we’re covering a multitude of topics, things from how accounts have done over the last year, we’re talking about beneficiaries, any new updates in terms of just daily living. So looking at, in all essence, a budget, so expenses and income, and making sure that we’re withdrawing from the right place or if we can turn on different sorts of income sources as well. That’s a big discussion topic. So from the entire financial planning standpoint, we’re using our retirement plan to take us through the conversation, and from there we’re kind of making decisions and having discussions on all of those different topics.
Radon Stancil: Yeah. One of the things that I talk to people a lot when we talk about financial planning and having a financial plan, which is all based around the financial plan, is that I compare it to a GPS system. And I always ask people, “What do you think is the most important part of what you put into a GPS?” And a lot of people very quickly will say, “The destination.” And I say, “Yeah, that’s a very important thing, but what if I’m trying to get somewhere, but yet I don’t know where I’m at, then that’s problematic. I can’t get somewhere if I don’t know where I’m at.” What this meeting does that Nick was just walking through is every year we’re updating the location of where we’re at. So we’re basically updating account values, we’re making sure that the income is right. Sometimes people get increases in their social security, maybe they’ve got another piece of income or they’ve stopped getting a piece of income, whatever that is, it just updates that location.
Murs Tariq: Yeah. Also, and on top of that, because what we always talk about is that there’s so many things when it comes to a retirement focused financial plan. It’s not just about investing, but it’s also where we are today. And what are the milestones that are ahead of us? Whether that’s decisions on social security or maybe you’re turning 65 and you’ve got Medicare approaching and you don’t understand Medicare. Well, we have a Medicare person in-house now that’s helping have those and guide those conversations. The estate plan side of things. So what happens to the money when you’re not here? That’s a topic of conversation as well, which leads us into beneficiaries because sometimes in a meeting we will say, “Let’s talk about beneficiaries.” And they could say, “Well, my will’s got that all handled.” And unfortunately that’s not true and that’s not the way that we want to approach beneficiaries.
A lot of the accounts that we accumulate over the years, we get to tie beneficiaries to them, like 401(k)s, IRAs, those are the most common that you know the word beneficiary for. But you also have life insurance and pretty much any account that has cash in it, even your bank accounts. What we talk about is the more beneficiary designations you can have added to account, the simpler the process is going to be when that terrible time comes and we have to start putting the estate in process. So Nick, how about this? Let’s walk through, since we’re now talking about beneficiaries, first of all, take us through what are we doing to prepare for this conversation around beneficiaries before the client even gets there?
Nick Hymanson: Yeah. So before the meeting, our team is really looking at all of the accounts, all of the investment accounts, and for some, we’re calling insurance companies and confirming who’s listed as beneficiaries for primary beneficiary and contingent beneficiary as well as their percentage allocations. So some people may have multiple beneficiaries listed under primary and contingent, some people may have just a few. So for everyone it’s different, but we check over every single account. Insurance-wise, we are likely calling them up, but then also on the Schwab side of things, and then the other types of accounts, we may have online access. But we’re putting all of the accounts together, we’re splitting it up by account so that we can basically present that in the meeting, on looking at the different Schwab accounts as well as the different insurance company accounts as well. We can talk about that too.
Radon Stancil: Yeah, I think the important thing here is that we do this every single year and somebody might go, “Well, what would happen over the course of a year that would make this need to be updated and all these different accounts?” I mean, we could tell you story after story. I’ll tell you a couple.
One, somebody actually had gotten a divorce and they just hadn’t remembered to fix all those beneficiaries. And so it doesn’t matter who you’re married to today. If you had your previous spouse listed, that’s who would get it. There is no arguing that point. And so that’s just something that’s important.
The other thing is sometimes there’s changes that might occur. We’ve had scenarios where somebody has a child who maybe has gotten into some kind of legal issue, maybe some kind of a lawsuit, or maybe they themselves are going into a divorce, and so they don’t want money to go that direction, and so they’re rethinking it. So we could go on and on and on as to why beneficiaries need to be changed. And I’m sure, Nick, you might have a story or two as well, but let’s talk a little bit about the structure and walk through what kind of things, what kind of layers as well as how you would actually put down beneficiary designations. We can just take our most common, let’s say you got a couple, husband and wife, how would they think that through?
Nick Hymanson: Yeah, so very likely, and I’ll cover primary and contingent beneficiaries first. So very likely what we see for a couple is if they have an individual account, we’re seeing the spouse as 100% primary beneficiary. So the primary beneficiary is who gets the money first, where does it flow first? And then the contingent beneficiary is if that person isn’t there as the primary, that’s where the funds will go to at that point. So basically, you can look at it as a backup if the primary is not there, but that’s kind of the flow from an individual account standpoint.
For joint accounts, it works a little differently if you do have a spouse. In some cases, you’re still listing both people as primary beneficiaries. In other cases, just depending on the investment account, you are skipping because you’re both technically owners of that joint account. You’re going and looking at, “Okay, we’re both owners. Where do the funds flow after that point?” So that’s something to think about. And so on each account it’s just different situations and different beneficiaries listed.
Murs Tariq: Yeah, I had a phone call the other day with someone and we were just talking about setting up a new account for him, and we were looking at how beneficiaries were set up on a different account that we managed for him. And I said, “I don’t see any contingent beneficiaries listed here.” Now, in his case, he’s got something set up to where he doesn’t feel like he needs contingent beneficiaries because he wants it to go to his estate. I would say that’s a rarity, but I think understanding the difference between primary and contingent, me, Nick and Radon, we do this for a living. So to us it’s a second language, but to everyone out there listening, it’s not a common thing. So that’s why we want to take the time to explain that.
But then also, Nick, you mentioned allocations. So with primary, sure, yeah, it makes perfect sense in a lot of cases that if I’m not here, my wife’s going to be primary, she’s going to get 100% of the money. But go to a scenario where now you’ve got a spouse and then also now you’ve got three kids. How is it dictated as far as those three kids, if they’re all three contingents, how’s the money divided up then?
Nick Hymanson: Yeah, so in that scenario, for the most part what we see is splitting up contingent beneficiaries by a third for each of the kids. So if there’s 3 kids, you would pretty much have it 33% for each of the kids. And sometimes in certain cases we’ll have to give 0.01% to one of them just to make it an even 100%. But that’s kind of how it would show in that sort of specific individual account. So it would go to the spouse first as 100% primary beneficiary, and then you’d have the 3 kids listed below that as contingents.
Radon Stancil: So let’s talk about this scenario real quick because we get this one every now and then. Let’s say that I have two children, I’m going to make them my contingents. I’m going to put my spouse as my primary, I’m going to put my two children as contingents, and let’s say that they each have children. And what I want is if something were to happen to one of my children, I don’t want that money to go to the other child and then get 100%. I really want it to go down to my grandchildren. So how do I do that? Do I just have to go through and name all them? Then the question comes up, well, what if one’s born and I didn’t put it down, so how do I make sure that future grandchildren get it equal? What’s a way or strategy to do that?
Nick Hymanson: Right. So a strategy to do that, and what it’s called is per stirpes. So it’s a specific beneficiary designation that you can put on your investment accounts that designates that the funds will flow down that specific family tree. So in this case, we’re talking about two kids and let’s just say it’s 50-50 split evenly. If one of the kids is no longer there, but the designation on that kid as 50% beneficiary is per stirpes, that 50% of the funds will flow down their family tree to their kids without any need to list them on the account. Just as long as it’s listed as per stirpes, that’s kind of how you keep it split 50-50 divided by the 2 families basically.
Murs Tariq: And I would say per stirpes, which by the way it’s spelled, because it’s a tricky word, P-E-R, and then the next word is stirpes. S-T-I-R-P-E-S, if you’re jotting it down. And [inaudible 00:11:50] should check, always check your beneficiaries. That’s the whole point of this episode. But check if you have per stirpes, if that is your intention for the money to flow downwards the hierarchy of the family versus what the other one is called is per capita, which is what Nick was talking about earlier. Go back to the 50-50 split of the 2 kids, and if one of the kids isn’t there, per capita means instead of it going to that kid’s kids, in all essence, it would go across to the other sibling. So the percent that they were supposed to get would go shipped over to their sibling rather than going down to their family lineage.
So per capita versus per stirpes, is I think an important distinction to understand. A lot of people don’t know that per stirpes is out there, but I think it’s pretty powerful. It saves a lot of the legwork of updating all these beneficiary forms every time a kid is born or a grandchild is born, and it makes it a lot smoother as far as what your intentions are, which is keeping it down the lineage versus per capita going across the lineage of your own kids.
Radon Stancil: And I was just going to say on that point, just real quick before we hit another topic, just so you understand, if I have a child who has four children, I got four grandchildren. If I say per stirpes, it automatically equally gives it to each child, grandchild, so I don’t have to worry about the percentages, it’s just going to split it up 25% to each grandchild equal. Now, if I did want it to be a different percentage, I have a grandchild I love more than the others or has a bigger need than the others, I can’t use per stirpes. I have to list those children and put the actual percentages there for that particular lineage, which you can do.
So if I have that situation, I’ve got one who I don’t want to have as much or whatever it might be. I was kidding about loving one more than the other, but there are scenarios where somebody would say, “This person doesn’t need the money.” Maybe they’ve already got … “I’ve got one that decided to do something that doesn’t make a lot of money. I’ve got another one who is a brain surgeon and they make a really good income and I don’t want it to go the same way.” So we can use that as a tool.
One other quick tool before we move on, I just want to speak about this real quick, is the other element. If I have the per stirpes language, and let’s say that I left my IRA, which is all taxable to my child, and let’s say that my child now is older and they’re making a really good income, they have the right to disclaim a portion of their inheritance. And what that means is that they could disclaim it, it would then go down to the grandchildren and they would get that and they would then pay their tax rate. And so that can be a very big tax advantage. They get to make that decision in the moment. You don’t have to make that ahead of time, but by having the per stirpes, you’re able to set that up. I’m sorry, Murs, I cut you off there because I wanted to hit that topic.
Murs Tariq: No, that’s really all I had. I think we’ve talked about beneficiaries quite a bit. Obviously there are things outside of beneficiaries that you want to think about as well, and we’ve done several podcasts on trusts and whether or not you need a trust or a will. All these things I think are very important to be talking about every single year. Are my beneficiaries up to date? Is my will in the right place that it should be? Or does my trust need updating? Because the fact of the matter is we see it all the time. Life changes. There’s divorce, there’s death, there’s new kids that are born, and so you want to be thinking about this on a regular basis because this is … Your retirement is one of the biggest assets that you have, and if you’re going to leave some of it behind you want to make sure it’s been done properly.
There’s a lot more that goes into financial planning. Our goal is to bring Nick on from time to time to talk more about some of the things that we talk about in financial planning strategy meetings, whether it’s around tax conversations or investment strategies or income planning or withdrawal strategies, all these different things, we want to do it in short snippets as so as not to overwhelm. But thanks Nick for being here, and that’s all I’ve got.
Radon Stancil: All right, everyone, if you have any questions, feel free to go to the website, top right-hand corner, click on schedule a call. Our calendar comes right up. You can click on that, and we’re glad to hop on a call, answer any questions you’ve got about this topic or any other topic. But thank you very much for listening. We’ll talk to you again next Monday.