RMH Investment Management always recommends that clients work with an estate planning professional. The following is not intended to be estate planning advice.
Did you know that beneficiary designations generally override wills and trusts?
When you name a beneficiary directly on accounts like:
- IRAs and 401(k)s
- Life insurance policies
- Annuities
- Payable-on-death (POD) or transfer-on-death (TOD) accounts
…the assets in those accounts will pass outside of your will or trust and go directly to the named beneficiary—regardless of what your will or trust says. Beneficiary designations are legally binding contracts with the financial institution. Courts will typically honor those designations even if they conflict with your estate documents.
That means if you’ve had a major life change and haven’t updated your beneficiaries, your assets may not be distributed the way you intend.
Here are some key beneficiary terms to be familiar with:
Primary Beneficiary
The person(s) or entity(ies) first in line to receive the assets when the account owner passes away.
Contingent (or Secondary) Beneficiary
Receives the assets if the primary beneficiary has already passed away or cannot accept them.
Per Stirpes
Latin for “by branch.” If a beneficiary passes away before the account owner, that beneficiary’s share goes to their descendants (children, grandchildren, etc.).
Per Capita
Latin for “by head.” If a beneficiary passes away before the account owner, that share is split among the remaining named beneficiaries, not passed down to descendants.
When listing beneficiaries, it is generally not required to list tax IDs but we recommend including it for the following reasons:
- Accurate identification: Names can be common, refer to multiple people, and names can change.
- Faster processing: It can help financial institutions verify and locate the correct beneficiary.
- Avoids disputes: Clear identification reduces the chance of confusion or legal challenges from others claiming to be the rightful beneficiary.
If you’re unsure of who you currently have named as beneficiaries or need help updating them, please reach out. We will assist you where we’re able to and for things out of our scope, we’ll help you find the right legal counsel. Coordinating your investment portfolio with your estate plan is paramount to a successful and organized wealth strategy.
Richard Mundinger, CFA
richard@rmhinvestment.com
520-314-2300
Ashlyn Tucker, M. Fin, passed CFA Level III exam
ashlyn@rmhinvestment.com