February 13, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 13, 2024

CLICK HERE TO WATCH THE UPDATE

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.
CLICK HERE TO LISTEN TO THE PODCAST
 
CLICK HERE TO WATCH ON YOUTUBE

Beneficiary Best Practices in Retirement – A Yearly Check-In

Nick Hymanson, a financial planner who is also part of our team, joined us on our latest podcast to discuss something very important: beneficiary best practices. If you work with us, you know that this is something that we have covered during our financial planning strategy meeting.
CLICK HERE TO READ THE BLOG

Annual Financial Planning Strategies- Beneficiary Best Practices

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Nick Hymanson, a financial planner who is also part of our team, joined us on our latest podcast to discuss something very important: beneficiary best practices. If you work with us, you know that this is something that we have covered during our financial planning strategy meeting.

What is a Financial Planning Strategy Meeting?

In the financial planning strategy meeting, we cover:

  • How your accounts did this past year
  • Beneficiary updates
  • Daily living changes
  • Expenses and income
  • Budgets 

We look at your financial plan as a whole during the strategy meeting. A lot of people think that the most important part of retirement planning is the end goal, but if you don’t know where you are right now, it’s challenging to navigate your way to retirement.

You need to know your milestones ahead and what to do with Social Security, Medicare and your estate plan.

Your estate plan is where beneficiaries really come into the equation. If you have a “will,” you may assume that you have everything in order and you know who is getting what. The problem is that you have a variety of other accounts that have beneficiaries listed, such as your 401(k), IRA, life insurance and even your bank accounts.

When the terrible time comes and you need to put the estate in process, proper beneficiaries on your accounts will make the lives of your heirs much easier.

What We Do to Prepare Before Discussing Beneficiaries with Our Clients

Our team reviews all your investment accounts and will call insurance companies to verify:

  • Primary beneficiaries
  • Contingent beneficiaries 
  • Percentage allocations

You may have multiple people listed as a primary or contingent beneficiary, or you can have one or two. We’ll gather information on all your financial and insurance account beneficiaries and separate them by account to make it easier to determine who is the beneficiary on what accounts.

We then present the accounts in the meeting to help you understand if your account needs to be updated.

Why do we review beneficiaries annually?

Of course, we have a lot of real-life examples of accounts that people seemingly forget to update during crucial life moments.

  • One client got divorced and didn’t remember to fix all the beneficiaries. It doesn’t matter who he is married to today. If he passed, the account would have gone to his ex, even though he is remarried.
  • Someone has a child who is in a lawsuit, so maybe you don’t want money to go to this individual based on the current circumstances.

A quick, annual review of your beneficiaries can help you better manage them because life changes can impact who you want to be named as a beneficiary on your accounts.

Common Example of Husband and Wife

Couples who have an individual account will, in most cases, have their spouse being 100% beneficiary of their accounts. If the person isn’t alive when the other person passes, the account would then go to the contingent beneficiary, who can be one or more people.

For example, if you’re married and leave your wife as the primary beneficiary and she passes before you, the contingent beneficiary would be “next in line.”

Joint accounts work a little differently.

On joint accounts, you’re both co-owners of the account, but you can have beneficiaries listed on the account.

Spouse and Three Kids

While you’re free to do as you wish, it’s most common for a person to leave their spouse as the primary beneficiary of their accounts. You should also list your kids as contingent beneficiaries so that if your spouse is no longer living, the account will go to your children.

It’s most common to offer an even percentage to each child, in this case, 33.33% share to each of the three children.

In certain cases, one of the children may receive 0.01% extra to make an even 100%.

Spouse and Two Kids Who Each Have Children

Every scenario is a bit different, and we really want to illustrate the importance of following beneficiary best practices. If you’re like most couples, you’ll:

  • Name your spouse the primary beneficiary
  • Name your children as contingent beneficiaries

Let’s assume that each of your children has a child, so you have two grandchildren. Your eldest child dies. What will happen to your grandchild? Does all the account go to the sole, living child?

You can put measures in place that allow you to pass the funds to your grandchildren. You can even pass the funds to children who may not be born at the time of naming your beneficiaries.

A strategy to use is called Per Stirpes.

What Per Stirpes does is allow for the funds, which you name for Child 1, to flow down their family tree if they pass away. You don’t even need to list the grandchildren on the account when using per stirpes.

Per capita can also be used, which means that the account goes to your kids only. In this case, if you have two kids and one passes, the other child will receive 100% of the account. You can also opt to give one child 75% of the account or 10% – it’s up to you. Certain clients opt to do this when one child makes significantly more money than another or they have a medical condition.

Children do have a right to disclaim their inheritance, which, if the benefit goes down the lineage, can have its tax benefits. Perhaps your child wants their children to inherit the money, so they disclaim their portion, and it goes to your grandchild.

If your grandchild doesn’t make any money or is in a lower tax bracket, this can be beneficial.

Annually, you need to review and update your:

Major life changes are a good time to review these documents, too. If you get married, divorced, have a child or grandchild, it’s a good time to look through your beneficiaries and be sure that everything is in order.

Schedule a 15-minute call with us if you would us to help you review your beneficiaries.

Beneficiaries – What you need to know!

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When you secure your retirement and have been diligent in your retirement planning, you’ll quickly find that your concerns may grow. One of the most common questions we get from others is: how to leave money to the next generation.

Our clients have a lot to say about leaving money to the next generation, including:

  • I’ve given enough to the next generation.
  • My goal is to enjoy my retirement. The kids can have what’s leftover.

But what happens if you’ve done everything that you wanted to do? You’ve traveled, purchased a vacation home and you still have more money than you need. Chances are that you’ll pass away with money that is left for your heirs.

You can use smart retirement planning to make sure that anything left does go to the next generation.

Account Types That You Can Setup

A lot of accounts can be setup so that the remaining funds can be passed down responsibly, including:

  • IRAs
  • 401(k)s
  • Savings
  • Brokerage accounts
  • Life insurance
  • Annuities 

You may even have private property, such as a home or other belongings that you want to pass down to either the estate or a specific heir.

How We Would Handle These Accounts

When you enter into your retirement, you’re likely going to have multiple accounts that you’ve put money into, with the most common being an IRA and 401(k). Accounts always have their own set of issues:

Traditional IRAs/401(k)s 

These haven’t had taxes deducted from them yet, so you need a withdrawal plan in place. But these accounts also make it easy to add a beneficiary to them. You can often log into your account, such as your Charles Schwab account, and add the beneficiary online.

We’ve had a lot of clients that have forgotten about these accounts completely.

If you’re juggling multiple accounts, it’s easy to forget one that may have a few thousand dollars tucked away in it. There’s also the risk that you have already added a beneficiary that you may no longer want to leave money to. For example, your ex may have been the beneficiary, and if still listed as such, he or she will be the beneficiary even if that isn’t your wish.

We recommend that you secure your retirement by consolidating these accounts so that all of your money is in one place, and it’s much easier for you to manage these accounts. 

It’s important to note that 401(k) accounts can be consolidated down into an IRA if you’re no longer working or aged 59 ½ or older.

Savings Account

Savings accounts may not have high interest rates, but they’re a good option to have access to cash when you need it. These accounts lack the great returns you’ll see with other accounts, but you can easily setup what is known as a TOD, which is a transfer on death, or POD (payable on death).

When you set these options on your savings or options, the account is able to avoid probate, which your beneficiaries will thank you for.

You can also setup multiple beneficiaries because what happens if your main beneficiary dies before you do? 

Brokerage Accounts

Setting up a brokerage account properly makes it much easier to separate assets even when compared to a will. The brokerage account may have a beneficiary designation, POD or TOD, that you can designate.

You would name someone to your account.

When you die, all the person has to do is file a claim and provide proof of who they are. This is much easier for the beneficiary than having to deal with probate or the courts.

Life Insurance

A life insurance account is one of the best accounts that you can leave to an heir. Why? These accounts are paid tax-free, so beneficiaries never have to worry about advanced tax strategies to keep more money in the estate.

Roth IRA

Roth IRAs are tax-free, too. The beneficiary is required to take the money out within a ten-year period.

Assigning Primary, Contingent and Further Benefits

Retirement planning should include knowing who you want to assign as your beneficiaries. The standard beneficiary documentation will include:

  • Primary beneficiary, which would be your first choice of a beneficiary. This may be your wife, child or anyone you like.
  • Contingent beneficiary or beneficiaries, which are the person(s) that you’ll want to leave your accounts to if the primary beneficiary is deceased at the time the document is executed.

We recommend that if you have a second contingent, you’ll want to add them as well. A good example of this would be your grandchildren, which would be second contingents. You can have percentages assigned to all of the grandchildren, and this is actually tax advantageous in most cases.

An example of the tax advantages:

  • You want to leave money to one grandchild to pay for their schooling.
  • The child’s parent is wealthy.
  • You might think that leaving the account to your child and allowing them to pay for schooling is beneficial, but it is not.

If you list the grandchildren, the parent can use “disclaiming,” which would help them not go into another tax rate. The grandchild will have to take the money out, allowing them to, in most cases, pay far less taxes if the grandchildren are listed.

You need to make sure that the grandchild is listed as a second contingent so that the money can be passed to them rather than their parents through disclaiming.

This is a tactic that is primarily used for a 401(k) or an IRA.

Per Stirpes and Per Capita

When you fill out a beneficiary form, you’ll often have to choose by per stirpes and per capita. If you don’t choose one, it will normally default to per capita. What does this mean? This means that if you put down three beneficiaries, and one of your children dies, their portion would be dispersed to the two remaining children.

This means that the two beneficiaries would now receive 50% of the account.

If you want the money to go to that child’s grandchildren, you will put “per stirpes” next to your child’s name. This would disperse the funds to your child’s children evenly instead of the money going to only your children.

These are some of the best retirement planning methods that you can use to leave money to the next generation. Even if you don’t want to plan your retirement around the next generation, these tactics can help keep money in your estate.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Click here to schedule a free, complimentary call with us to discuss how you can leave money to the next generation.