Errors in beneficiary designations are among the most common and potentially costly planning mistakes I catch. As part of the information gathering process, I routinely ask clients to provide copies of ALL beneficiary forms. These include transfer-on-death and payable-on-death agreements, life insurance and annuity beneficiary designations, IRA and Roth IRA forms, employer-sponsored retirement and health savings account designations, group life and AD&D coverage designations. Here are some of the common types of mistakes and oversights I have discovered –
- Husband and wife had updated their beneficiary designations following the births of their first three children but forgot to do so after the fourth was born.
A client who had been divorced and remarried failed to remove his ex-wife as the beneficiary on his life insurance policy.
- A client was unaware that the beneficiary form he returned to his employer only covered is 401(k) plan and did not realize that a separate form was required for his group life insurance coverage.
- An insurance company had noted the name of a different, completely unrelated client listed as the beneficiary of the client’s life annuity contract.
- A client left one of his children as the sole beneficiary on a large IRA with instructions to divide it amongst his siblings.
- A credit union lost the beneficiary form for an IRA.
- A client accidentally listed one child as the primary beneficiary and the other as contingent when he had intended both inherit equally.
Bringing these mistakes to your clients’ attention is a wonderful way to demonstrate your value and strengthen the planner-client bond. As a best practice, we encourage all of our financial planner clients to keep copies of all of their clients’ beneficiary designations.
Contact Info: Laurey@fphawaii.com
The information contained herein is general in nature and should not be construed as providing specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making investment or financial planning decisions with tax or legal implications.