Money Matters
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Beneficiaries

I am starting a new IRA, and I need to assign beneficiaries.....and then, I wondered....do I? If the money from my account goes to my spouse and children automatically when I pass away, why do I need to write them down as beneficiaries? Isn't it just easier to let it happen naturally? I'm just thinking if I list my husband as primary and my 2 children as contingent, then when the next baby comes (I'm currently pregnant) and I forget to update it, then that 3rd child would think I didn't love them as much. Sounds dumb, but I really am serious. Why take the time to do it when the law is going to give it to those people automatically anyway?

Re: Beneficiaries

  • You might want to check with your ira provider.  Mine says this unless you change it:

    According to the terms of your Custodial Agreement, your default beneficiary will be your spouse. In the event you have no spouse, your beneficiary(ies) will be your children equally. If any child does not survive you, the deceased child’s share will go to his or her children (your grandchildren) or, if none, the surviving children equally. If no children or grandchildren survive you, your beneficiary will be your estate.

    This is with American Funds.  Yours may have something similar.

    Beyond that.  Never assume what will happen.  At least check.  And these things can be repeatedly updated.  Usually online.  I originally had my parents.  Then took them off and added my wife.  May eventually add the kiddo when he's older.  My advisor advises against adding him for now in case we died early.  @hoffse could probably explain why better than I could.
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  • als1982als1982
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    If you don't fill out the POD and you don't have a will, your assets would have to pass through probate, which can take many months, and in some cases, years.  Also, the line of inheritance varies by state, so while you think your money may be disbursed in one way, that may not be the case.  For example, I live in a city that straddles two states.  One state dictates that if there is a spouse and children, one half of the estate is bequeathed to the living spouse and the other half is distributed equally among the deceased's living children.  In the other state, all of the assets transfer to the spouse.  So yes, it's important that you complete your beneficiary information. Don't make assumptions, document your intentions.
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  • vlagrl35vlagrl35
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    I would fill it out just in case.  In my state even if the person had 50% going to spouse and 50% going to father - 100% goes to spouse.
  • vlagrl35 said:
    I would fill it out just in case.  In my state even if the person had 50% going to spouse and 50% going to father - 100% goes to spouse.
    Same here. The only way I can leave my retirement accounts to anyone other than my husband is with his written consent. Even if I specify a different beneficiary it will go to him unless the bank has a form on file that said he agreed to my choice. 
  • brij2006brij2006
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    Speaking from experience, fill in the beneficiary information and assign it exactly how you want it to be dispersed.  Don't assume it will be handled one way or another.  Also, anything without a specific beneficiary goes into probate.  It may not seem like a big deal since it would go to your spouse and kids (or however your state is set up).  But let's give a bad case scenario.  While money is in probate, anyone can come in and say you owed them money and give proper proof.  This can extend probate and tie up that money for years as your spouse fights to prove otherwise.
    Not putting a beneficiary just makes it more hassle than it needs to be.

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  • hoffsehoffse
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    @als nailed it.  Money from accounts with beneficiaries pass outside of probate.  When there is no beneficiary it has to be probated.  If you don't have a will, then you follow your state's intestate laws, but even this can vary based on your residency and where you own property, etc.  Like @als mentioned some states give everything to the spouse, some give a portion to the kids, some even include parents in the intestacy rules.  It gets even more complicated if your property is "domiciled" in multiple states.  For example, my dad owns some land in California, but the rest of his property is in Georgia.  If he doesn't divest himself of the California property before he dies, we will have to probate that property in California and the rest of his estate in Georgia (he's working on selling it).  When you start probating in multiple states it gets very complicated.

    It's best to set things up to pass outside of probate as much as possible, and naming a beneficiary on a bank account or retirement account is one  of the easiest and cheapest ways of doing it.  It takes virtually no time, and it does not take a lawyer.  Most banks will let you change beneficiaries online or by mailing in a simple form.  

    Keep in mind too that probate doesn't just take a long time, but it can be expensive for your heirs.  In my state an estate has to remain open for a minimum of 6 months in order for lenders to make claims, and we are on the short side.  Some states require estates to remain open for a full year or more.  Meanwhile that money is in limbo and your heirs are paying lawyers to manage everything.  Hopefully your heirs find a lawyer who only bills when required - and most lawyers are in the camp. But there are also some less scrupulous lawyers out there who will bill the daylights out of an estate.  Estates are easy clients because the original owner of the money is dead, and the lawyers know EXACTLY how much money is in the estate because they are the ones probating it.  If their bills aren't paid by the executor, then the lawyers may have a claim on the estate.  You see where I'm going with this.  This kind of thing happened with my grandmother's estate.  My grandmother had a lot of assets to probate, and the lawyer dragged things out, flamed some internal family conflicts, and kept the estate open for a full 3 years.  She managed to find something to bill for every month for those 3 years.  My dad mostly stayed out of it because his siblings wanted to be the ones handling everything, but he eventually intervened when he added everything up and realized she had cost the estate over 6 figures in legal fees.  The lesson here is to keep as much out of probate as possible.

    I mean this in the nicest way possible, but the notion that you might forget to add a future child is a poor excuse.  Checking your beneficiaries takes next to no time, and it's something that you should do every year.  Maybe you do it on January 1 or you do it when you are filing your taxes, or whatever.  Estate plans as a whole should be examined every time somebody in your immediate family is born or dies.  
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  • takmjstakmjs
    Seventh Anniversary 10 Comments 5 Love Its Name Dropper
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    @hoffse, what I meant about forgetting to add a child as a beneficiary is if something happened to me within a few months of his/her birth and I'd forgotten to change it in that amount of time. I get notices from several places to check your beneficiaries each year, so I won't "forget" until they're 18 years old or anything. :)

    This is all good information, especially about probate, people claiming you owe them money, and racking up legal fees. I will definitely fill out the beneficiary forms for this new IRA! Thank you!!!
  • @takmjs Just another thought.  Not sure where your IRA is, but if you have a financial advisor who has access to it, you can just tell them to make the change and they can do it for you.  Less "fuss" on your end.  Will probably depend on who yours is through though.
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