As we move through life, we experience a number of life milestones. We go to school and we get jobs. Many of us marry, have children and see them go through the same cycle of milestones. Some of us see the cycle repeat again with grandchildren.
Of course, there are sad events that occur through life. Sometimes businesses fail or jobs are eliminated. Some marriages experience an untimely end. Loved ones (or ourselves) may experience illness or disability. Ultimately, death touches us all.
However, while we know that death is inevitable, we sometimes spend too little time planning for the impact it will have on investments. While it can be unpleasant to discuss or even contemplate the issue, the failure to do so can have dramatic consequences. A number of those life events referenced above, including marriage, divorce and birth or loss of a child or loved one can impact an investor’s plans for the distribution of their investment accounts upon their death.
At least annually, investors should review their investment accounts. For individual non-qualified accounts, the will of the account owner determines how the account will be distributed. In the absence of a will, the distribution will be made in accordance with state law. For qualified accounts, (including Individual Retirement Accounts), a beneficiary must be designated for each account. If the account owner failed to designate a beneficiary, (or the designated beneficiary passed before the account owner), the account will pass to the owner’s estate. If the account passes to the owner’s estate, it is distributed as per the owner’s will or in the absence of a will, state law.
Investors are advised to consult with their legal advisor on the proper beneficiary designations for their accounts. An estate attorney can also advise as to whether an investor needs to establish one or more trust accounts to accomplish their planning objectives.
All investors need to set a regular schedule for reviewing the beneficiary designations on all accounts. While death may be an unpleasant topic to think about it, it is inevitable. The only questions is whether the assets will be distributed according to the owner’s wishes or whether the failure to plan will just lead to more grief for those left behind.