One of the most effective and simplest things to do during annual estate planning is to verify and validate the Beneficiary Designation for financial accounts. This is a relatively low-complex, high-value process that includes reviewing and possibly revising the paperwork in place, as these are part of the Operating Agreements of the family as they run the Business of the Family like a business.
BofA Merrill posted a great article “Beneficiary designation: The step everyone should take to protect their loved ones” with a host of practical and accessible advice. Let’s learn from the experts, shall we?
First things first, who or what are beneficiaries? “For banking accounts, they may be called payable on death (POD) beneficiaries. And for investments, the term transfer on death (TOD) beneficiaries may be used. They might also be referred to as "in trust for" (ITF), "as trustee for" (ATF) or Totten trust beneficiaries. For life insurance, they may be called primary or contingent beneficiaries. Upon your passing, the funds in the account go to or are held for the designated beneficiaries, bypassing the lengthy probate process in court.”
Said another way, beneficiaries are the named entities on a very limited Power of Attorney form that is attached to the account. This gives the financial institution the legal authority to conduct business with the beneficiary upon the passing of the primary account holder. And if no beneficiary is named, the default is the probate court.
The article notes there can be multiple beneficiaries, a waterfall of beneficiaries, and other structures. All of that is helpful information. But what really caught my attention: how often should we review our beneficiaries? “It's essential to regularly review and update your designations, particularly after significant life events such as a marriage, divorce or the birth or adoption of a child. Consider setting a yearly reminder to review your designations.” Perhaps during the annual Family Board Meeting?
Beyond this sage advice, the article further notes that taking these steps can help protect your family wealth and legacy:
- Provide for dependents
- Appoint an attorney-in-fact
- Create a living will
- Establish a trust
- Create a digital estate plan
Not only do we agree wholeheartedly, I would go even further: wrap all of this into a unified family system where the family runs the Business of the Family like a business. Alignment on Family Goals and outcomes to reach in the next 1-3-5-10-30 years. Annual Family Board Meetings to showcase progress and plan for the future. Regular review of the Operating Agreements of the family. Clear accounting of the Family Assets and Liabilities. Strategies to make and save more wealth in the future.
We can help ourselves preserve family wealth and strengthen our family legacies. We can help ourselves support Mom and Dad as they ride off into the sunset. We can help the Next Generation learn the Business of the Family. We can move our families forward…