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Galva News - Galva, IL
  • Making Cents: Beneficiary designations need review

  • Beneficiary planning is typically done the day you buy a life insurance policy or annuity or start a new job, and then the document gets stuffed in a drawer and isn't considered again until a life event occurs or some financial person asks you to dig up old records.

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  • Beneficiary planning is typically done the day you buy a life insurance policy or annuity or start a new job, and then the document gets stuffed in a drawer and isn't considered again until a life event occurs or some financial person asks you to dig up old records.
    But you may benefit from taking a second look at these elections sometime down the road.
    Assets that should have a current beneficiary designation include any life policies, annuities, employee benefits and retirement plans such as 401(k)s. The selection is important because whomever is named as your beneficiary receives the assets upon your death, without regard to what your will says. If your will states that your children shall receive your life insurance after you die, and then you change the beneficiary of your life policy to your new spouse, the kids lose.
    The importance of beneficiary selection is significant, with powerful implications.
    Let's think about one of the more common forms of beneficiary selections - the one in which your assets would be left to your spouse, and then split equally among your children if your spouse dies before you.
    This sounds equal, but is it entirely fair or the right thing to do? It might not be smart if you're passing on a family business. If only one of the children works in your business, it might make sense to bequeath that business to that child and not to the other two. Altering your beneficiary elections to your retirement accounts or life insurance may be an effective way to equalize the amount of each child's inheritance.
    Using the "all to spouse then to the children equally" method of selecting a beneficiary can lead to issues if the children are still minors or perhaps unsteady with financial matters.
    Putting a large amount of money in the hands of a 19-year-old may not be in the best interests of the child. In this example, perhaps a trust that dictates the terms and time frames of the beneficial interest may work better than an outright election directly to the child.
    Checking beneficiary elections regularly is important. When doing the check, do not rely on your memory or copies of forms in your files.
    Check to see that the institution has a copy of the beneficiary election on file and that it is the same one that you have and want.
    John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached at jnap@uswealthcompanies.com.
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