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Life Changes in 2016? Update Your BeneficiariesSubmitted by Townsend Asset Management Corp. on January 9th, 2017
Benjamin Franklin famously wrote, “In this world nothing can be certain, except death and taxes.” What can be uncertain is who financially benefits from your passing. The start of the new year is a good time to do some account housekeeping and ensure that you have designated beneficiaries for your various accounts (including Individual, Joint Tenant, IRAs, and 401Ks) especially if you have had any major life changes in 2016 such as marriage, divorce, or birth of a child.
When beneficiaries are noted on your account, the recipients receive the funds prior to the distribution of any assets named in your will which streamlines the process. In other words, the beneficiary designations on your account override your will, so keep that in mind as you plan your overall estate.
Let’s go over some common terms that you will encounter when determining your beneficiaries.
Primary beneficiary - The person (or persons) who will be the first in line to inherit the funds in your account. You can have as many beneficiaries as you wish, provided the total is 100%.
Contingent beneficiary – This is the person (or persons) who inherit the funds only if the primary beneficiary is deceased. Once again, the total number of shares needs to equal 100%.
Per Stirpes – This term, derived from Latin meaning “by roots or by branch”, is often used in beneficiary designations. It simply means that if a beneficiary of an account is deceased, that person’s portion of the inheritance goes to his/her heirs.
Here’s an example: Bob named his three children (Billy, Beth and Belle) as his primary beneficiaries “per stirpes” on his IRA. Billy, his son, passed away before Bob did. Under the per stirpes provision, on Bob’s death, Billy’s one-third share would go to his Billy’s daughter, Sue.
If you own a joint account with someone (spouse, child, or friend), upon your death the funds will go to the other person named on the account. However, it would be wise to name a primary beneficiary (or beneficiaries) in the event something happens to both account holders.
We are here to help you with all the necessary paperwork to get your account beneficiaries in order. Please contact Bonnie@AssetMgr.com or call us at (919) 782-9689.
Gerald A. Townsend, CPA/PFS/ABV, CFP®, CFA®, CMT® is president of Townsend Asset Management Corp., a registered investment advisory firm located in Raleigh, North Carolina. Email: Gerald@AssetMgr.com