I'm Stephanie Sammons, a CERTIFIED FINANCIAL PLANNER™ and the Founder of Sammons Wealth Management. I help successful women professionals who are in midlife plan for their ideal retirement. Learn more about planning, saving, and investing for your ideal retirement at Sammons Wealth Management.

One of the most overlooked financial tasks that I see as an LGBTQ Certified Financial Planner™ is mistakes with the naming beneficiaries on retirement accounts and life insurance policies.

It doesn’t take that much time to review your beneficiary designations, and it’s relatively easy to update them.

If your beneficiary designations are wrong, or missing altogether, there can be serious consequences. Not only can it cause a disruption in family harmony (or an all out family war), there can be significant tax and legal costs. Perhaps even worse, your legacy is disrupted and your hard-earned dollars won’t go where you wanted them to!

I conduct regular beneficiary reviews with my clients to ensure that their forms are updated and that their wishes have not changed, especially after any major life event.

With new clients coming onboard, I often discover missing beneficiary. The truth is, it’s just an easy thing to overlook.

Retirement accounts such as IRAs and 401ks, and life insurance policies, do not pass according to your will. These financial assets and accounts pass outside of your will or living trust, according to your named beneficiaries. Many people do not realize this.

For those of us who are LGBTQ, I think getting your beneficiaries right is even more critical. Many of us can have challenging and changing family dynamics.

For example, I’ve seen cases where families of a deceased LGBGQ person do not honor and ultimately challenge the partner being named as a beneficiary. This is one of the reasons I’m an advocate for gay marriage if you’re in a monogamous, long-term relationship.

A designated beneficiary should be a person or a trust. It should not be your estate! If the case of naming a trust as a beneficiary, the trust would dictate where the funds go and how they are to be distributed.

Unfortunately, many people invest in having a living trust set up but neglect to add the trust as the beneficiary to their various financial assets and accounts!  That is a critical step that often gets overlooked.

In naming designated beneficiaries, you want to name both primary and contingent (in case your primary beneficiary pre-deceases you, or in case a primary beneficiary decides to disclaim their interest). You could also name a charitable organization. Learn more about LGBTQ charitable giving strategies here.

You can split up what each beneficiary would receive any way you’d like to. For example, you could allocate 50% to one person and 50% to another – as long as the total adds up to 100%.

If you have a minor beneficiary (child under the age of 18), there are some special considerations to understand. For example, in order for the minor to be able to “stretch” distributions out of an IRA over their lifetime, they must be named as a designated beneficiary on your account(s), or the stretch benefit is lost!

Don’t forget to actually let your beneficiaries know that you’ve named them! There are $1B in life insurance proceeds that are unclaimed! Make copies of your beneficiary forms and let your loved ones know.

Other life changes that may necessitate a beneficiary review:

Have any individuals named as beneficiaries passed away? Are there any individuals (or charitable organizations) that should be added or removed as beneficiaries? Have there been any marriages or divorces, that would impact your estate plan? Is there a beneficiary with special needs receiving government assistance? Do you need to protect any beneficiaries from a divorce, creditor issues, substance abuse or gambling issues? 

For employer-related retirement accounts such as 401ks, make sure your employer has your beneficiary information and/or forms on file. Check with your financial advisor or custodian (if you don’t have an advisor) to make sure you have accurate beneficiary forms on file for personal accounts including IRA’s, annuities, and small business retirement plans. Also check with your insurance agent for life insurance beneficiary forms. 

If you have parents who are still living, I also recommend reminding them to review their beneficiary designations for accuracy and completion.

For financial assets and accounts that are not beneficiary-driven, that’s where a will takes over, or in some cases a living trust.

It’s easy to overlook naming your beneficiaries, but don’t procrastinate on this. It’s a quick task to accomplish, and you’ll feel better once you conduct your review!

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(00:02): Welcome to the LGBTQ midlife money podcast. I'm Stephanie Sammons and experienced certified financial planner. And my goal is to help you take charge of your money and live your best midlife to episode 33 of the LGBT midlife money podcast. I hope you had a wonderful Thanksgiving week. I actually took that week off from the podcast and spent some time with the family.

(00:36): But today I have an awesome episode for you, and it's called a holiday gift for your loved ones, reviewing beneficiary designations. One of the most overlooked financial tasks that I see is beneficiary designations that are either wrong or missing. And it's something that is relatively quick to take care of reviewing and updating who you've named to be the beneficiaries of your assets and accounts. So this is something I take very seriously with my own clients, and it's one of the big things we do in the financial planning process to make sure that their beneficiaries are set up correctly and consistent with their wishes. On a future episode, I'll talk more about updating your will and your powers of attorney for financial and healthcare in the event that you become incapacitated or what you want your wishes to be when you leave this world. But for this episode, I really wanted to focus on beneficiaries because I think it is so important and it's not difficult or terribly time consuming to take care of.

(02:09): And it's something most likely you can just do yourself without having to get an attorney involved. So there have been a litany of court cases over the years around beneficiary designations, and there was a landmark Supreme court case where the justices unanimously ruled that a retirement account be paid to a person's ex wife, because she was never removed from the original beneficiary form on file with the person's company after a divorce. And even though she had agreed as a part of the divorce settlement to waive her rights to that retirement account, she still received that retirement account when her spouse passed away, even though they were divorced and she was not supposed to receive those assets. And that's because the beneficiary designation trumps everything else, it's that important. And it's why I want to talk about it today and believe it or not, this kind of thing happens all the time.

(03:24): People neglect to fill in their beneficiary forms and information. And not only can it disrupt family harmony when you're gone, but it can also be very costly in terms of lost tax benefits or legal costs as well. It's just a mistake that cannot be fixed once you are gone. For those of us who are LGBTQ, I think beneficiary naming is even more important. Many of us have challenging and changing family dynamics. You know, for example, I've seen cases where families of the deceased do not honor and ultimately challenge the partner being named as a beneficiary. If, if the family doesn't accept, uh, your relationship, for example, that can create problems. And this is also one of the reasons I'm a big advocate for gay marriage. If you are in a longterm committed relationship, but that's also for a later episode, the point is as LGBTQ people, we really need to take seriously how we set up all of our estate planning documents, including how we name and who we name on our beneficiary forms.

(04:47): Now, what kinds of assets and accounts require a beneficiary designation? There are certain financial assets and accounts that are 100% driven by who you name as your beneficiaries. So those accounts and assets are not covered by your will or even by a living trust. If you have one, these are accounts such as any kind of IRA, including Roth, IRAs, 401k, or other business, retirement plans, or company retirement plan accounts. Your life insurance has beneficiary driven annuities. If you own any annuities, which are a form of insurance, those are driven by the beneficiaries you name as well. So all of these types of assets and accounts will pass outside of your will. They do not follow your will. And they pass according to who you've named as your beneficiaries on those forms, who could be a designated beneficiary? Well, it can be a person or it can be a trust.

(06:13): It should not be your estate. That's where you will run into some problems. In the case of a trust, the trust would actually dictate who the funds go to and how they are distributed. So if you name your trust, assuming you have a trust drawn up that exists. If you name your trust as your beneficiary on your IRA or your 401k or any of the other types of accounts, I mentioned that trust will then dictate how those funds should be distributed to your errors. Many people forget or neglect to name their trust as the beneficiary. So they spend time and money with a lawyer setting up a trust and they don't follow through and make sure it add that trust as their beneficiary on their various accounts and assets. So that's a really important step that I see that gets overlooked from time to time.

(07:21): Now, you can also split up what each beneficiary would receive any way you'd like to, for example, you can give 50% to one person in 50% to another, as long as it all adds up to 100%, not only do you want to name a primary beneficiary or multiple primary beneficiaries, but you also want to name contingent beneficiaries. And that is in case your primary beneficiary predeceases you, or in case a primary beneficiary decides to disclaim their interest in the asset. You need to also have contingent beneficiaries listed. If you have a minor beneficiary like a child under the age of 18, there are some special considerations to understand. For example, in order for the minor child, to be able to stretch distributions out of an IRA that they inherit over their lifetime, they must be named as a designated beneficiary on your account, or that stretch benefit is lost.

(08:41): So yes, you can name a minor beneficiary on an IRA on your life insurance and on these other various accounts, but there are definitely some special considerations, you know, do you want that minor beneficiary, uh, in the event of, have they received your life insurance proceeds? Do you want them to have access to all of that money upfront or do you want to dictate when and how much they will receive over time? If that's important to you, then that requires some additional estate planning and probably requires a trust. So just something to keep in mind, but with an IRA or a retirement account, if you name a minor beneficiary, then they will most likely have that benefit to be able to stretch out those distributions over their lifetime. It depends on certain factors. So it's something to review and don't just take this as a starting point.

(09:43): Don't take it as advice for your situation. You need to do some further review and talk to your advisors about that. Now another important consideration is once you have reviewed and updated all of your beneficiary designations, let them know that you have named them as a beneficiary. Did you know there are about $1 billion in life insurance proceeds that are unclaimed and that's because the life insurance companies are waiting on the beneficiaries to claim their benefits. So it's very important that not only you let people know, but also keep copies on file in your files and let your beneficiaries know that you have copies of all of your forms. Let me now give you some questions to think about as you are reviewing and updating your beneficiaries on your accounts and assets, have any individuals that you have named as beneficiaries currently, have they passed away?

(11:05): Are they no longer living? Are there any individuals or charitable organizations that should be added or removed as beneficiaries? I know, especially in our community, the LGBTQ community, many of us are charitably inclined. And I talked about strategic charitable giving on the prior episode, episode 32, I believe it was. So if it's important to you, if, if you don't really have a person in your life that you want to leave your assets to, you can name a charity and give your assets to a charity of your choice upon your now, this is also something that I recommend. If you have significant assets, if you have assets of $500,000 or more that you probably seek the counsel of an attorney on how to structure that, but it's possible to name a charitable organization as a beneficiary. Also, have there been any marriages or divorces in your life in recent years that would impact your plans and your beneficiary designations?

(12:27): That's something really important to look at. A lot of us have gotten married since marriage became legal for gay couples, including myself, got married to my spouse in 2016 after being together for a decade. So that required some additional planning and our beneficiary designations didn't change, but we definitely reviewed those. Once we got married, is there a beneficiary with special needs receiving government assistance that you have named? There are some special considerations there. Do you need to protect any beneficiaries from a divorce, creditor issues, substance abuse, or gambling issues? So you might want to have some special parameters in place if that's the case, if you've got a beneficiary, but you're concerned that there could be some problems with them receiving assets or accounts from you when you pass away.

(13:41): So really any time you have a major life event, a birth, a death, a marriage, a divorce, it's a good time to review and update your beneficiary forms. And why not challenge yourself to get these things done by year end. That's why I'm calling this episode a holiday gift for your loved ones. Make sure also that you review your retirement accounts, such as a 401k with your employer. A lot of times employers may be missing these forms, or they may be really outdated. And employer is not always proactive in getting you to update your beneficiaries and making sure that you have that information on file. Also check with your financial advisor or the custodian where you hold your investible assets and your IRA accounts, to make sure that you have accurate and updated beneficiary forms on accounts like IRAs, annuities, small business, retirement plans, these sorts of things.

(14:53): Also check with your insurance agent for life insurance, beneficiary forms and see what you have set up there. It's super, super important. You all. And I really want to emphasize, this is something that you don't want to procrastinate on or put off any longer. It doesn't take that long to review this stuff and take care of it. And lastly, if your parents are still living and you have a good relationship with your parents, you may also want to make sure that they have beneficiary forms on file, and that those forms are accurate and consistent with your parents' wishes as well. Hopefully this episode helps you understand the importance of naming your beneficiaries, and I hope that you'll go out there.

(15:52): We'll get this taken care of before the end of the year. That's your challenge. Thanks so much for listening.

(16:03): You've been listening to the LGBTQ midlife money podcast to learn more and to sign up for our email list, visit LGBTQ midlife money.com. This show is for informational and educational purposes. Please do not consider any of the content as personalized financial

(16:27): [inaudible].

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