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August 4, 2017Keep your Beneficiary Statuses Updated
Marriage is a bond that not only ties your hearts but your finances too. Recently, a client that lost a spouse asked me, “What should I do with the money?” There are many answers to this question and it depends upon your own personal situation. In this particular case, both spouses were previously married to other people. One ended in death, while the other ended in divorce. So obviously this was a blended family. When the wife passed, she left the money in her IRA to the husband. His primary concern was how do I take this money and divide it among the beneficiaries? That’s why it’s so important to keep your beneficiary statuses updated on all important accounts and legal documents.
The Scenario
Here’s a breakdown of their financial scenario. He is now handling three separate pots of money basically; the money he had before marriage, the money she had before marriage and the money they had together. So his question is a valid one in what some would probably consider a sticky situation. This client is a fair man and wanted to benefit their children equally. He had no intention of trying to benefit himself or just his children over hers. He wanted to be fair in distributing the money among the children. That meant he wanted to leave her money to her kids, his money to his kids and then divide what they had together among all their children. Here’s how we accomplished that.
The Plan
We compiled a plan that placed monies in beneficiary status. They both had IRAs in their names and we began moving her IRAs over into his name and we calculated a percentage value of what belonged to him, what belonged to her and what amount belonged to the both of them. When setting these new accounts up, we chose on the beneficiary status an allocation percentage to distribute the funds among the family members. In doing so, it ensured his children received all his money, her children received all her money and then all their children evenly split the money accumulated among the two of them.
It’s possible to do this because of the beneficiary status on these account types. These statuses are available in other situation like 401k’s, annuities, 403b’s, and even life insurance contracts. This beneficiary designation within the IRA allowed us to reposition all of his accounts to proportionately benefit the children in an objective manner.
Once we completed this setup, he could now use the money to cover his lifestyle and living expenses. Therefore eliminating the worry of what would happen after his death. The funds will appropriately pass to the beneficiaries in the most reasonable way. The children won’t be left to figure it out on their own or squabble over the ‘his and hers’ of it all. That’s why it’s so important to make sure our beneficiary statuses on all of our life insurances, retirement accounts, legal documents coincide with our wishes.
Too many times, through a divorce, death, or other various circumstances we forget to update this important status. Letting this fall through the cracks can create an ugly situation. If an ex-spouse inherits money you intended for your current spouse or even your children. So when it comes to beneficiaries, you want to make sure you check them and keep them up to date to reflect your true wishes.