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Beneficiaries: the Easy Way to Protect Your Money

   Posted On: February 23, 2016  |    Posted In: Personal Finance 101  |     Posted by: Broke Millennial®

During the course of a three-hour class that occurs from 6 pm to 9 pm after working a full day, the mind may begin to wander. I on occasion will begin to plot my next travel adventure or wonder when I’ll be able to get another dog or fantasize about reaching that next money goal (it’s border on an unhealthy obsession). During one these moments of brain relaxation, I heard the statement, “or else your money could end up stuck in probate court.”

My mind immediately snapped back from picturing Mosby frolicking in a three-acre backyard with two new canine sisters (pitbulls in case you were wondering) and honed in on my professor.

She went on to give a high-level explanation of probate court, which I will sum up as: the tenth circle of hell in which the government (well the court of your land) gets to determine where and to whom your assets are distributed after your demise.

The next day I immediately phoned up my bank and double-checked on my investments to ensure the proper precautions were taken to keep my money out of probate court.

Unless you simply have no care about passing along your assets (even the most meager sums) to a loved one upon your death or you really just think it should get partially squandered on needless court fees because you were too lazy to take 10 minutes of your life to get your house in order, then that’s on you.

For the rest of you – there’s a simple, two-pronged solution to keeping your money out of probate court.

  1. Put beneficiaries on your accounts
  2. Have a will

The first solution is incredibly simple and honestly will take probably a collective 30 minutes of your time, depending on how many financial institutions you use. In fact, when you set up your work 401(k) or your IRA or whatever other investment you might be using, there probably came a time you were prompted to designate a beneficiary. The second takes a bit more time and can actually cost you money, but it’s important to have a will once you have some assets in your name. Until then, the beneficiaries will probably do.

Yes, you do need to read this if you only have a couple hundred bucks and barely anything in your 401(k).  

I can sense what so many of my fellow millennials are thinking. “Please, I only have a few hundred bucks to my name. Why does it matter?

Well, don’t you still want your parents or siblings to get those few hundred bucks? At the very least it could offset some of the costs of your funeral. And, if you don’t die soon (which you probably won’t) then you’re all good to go as that savings account and retirement account(s) grow and you suddenly do have a sum worth passing along.

Protecting Your Money in 3 Steps

Step 1: Set up beneficiaries with a PoD and a ToD

It’s incredible simple to set your beneficiaries up. You can probably just log into your bank or investment portal and put beneficiary in the search bar and be directed to the appropriate place. Otherwise, call up customer service and say you want to set up a Payable on Death (PoD) for bank accounts or a Transfer on Death (ToD) for investments. In many cases you might have already set up a beneficiary when opening a retirement account or investment account.

Seriously, super easy

You will need your beneficiary’s full legal name, birth date and possibly Social Security number in order to complete the process.

Step 2: Tell your beneficiaries

Cailin (my sister) got a morbid text a few months ago.

“Hey, can you call and tell me your Social Security number? I need it to name you as a beneficiary on my accounts.”

When she called, I explained that I wanted to set it up so she’d inherit all my money upon my death from two savings accounts, two checking accounts, a 401(k), both a traditional and Roth IRA as well as a handful of index funds. I told her the financial institutions I used, so it would be easier for her to track them down. In full disclosure, our family is pretty comfortable talking about death, wills and inheritances.

Well, she doesn’t get everything. One savings account is earmarked for Peach because he’d inherit Mosby, should I meet my maker prematurely, so I’d like him to have a little money to use towards caring for my dog-son.

Setting beneficiaries is important, but it’s also important that they know so it simplifies the process. Grieving is an awful time, so everything you can do to make it easier for your loved ones the better. And setting it up so they don’t have to worry about your estate is a beautiful parting gift.

Step 3: Check in on your designations as life events occur (they trump your will)

IMG_2362The final piece is to check in on your designations each time a life event occurs. Some examples being: marriage, the birth of a child, divorce, re-marriage, death of an existing beneficiary.

Hopefully only two of those actually happen to you (you be the judge of which ones), but each time a life event occurs it may mean a shift in your beneficiaries.

For instance, if Peach and I get married then my sister will get knocked off as my primary beneficiary (sorry, Cailin) and it will change over to Peach. Then if Peach and I decided to have/adopt kids, then they would likely also be named as beneficiaries.

It’s important to keep tabs on beneficiaries because they often supersede a will.

Unfortunately for many a second-spouse, a beneficiary on an account will inherit funds even if the will has been updated to remove spouse #1 and leave everything to spouse #2. You can image how many a scorned first spouse has been tickled with delight when the ex forgot to update beneficiaries.

A parting gift

As a congrats for reading about this most morbid topic, one that makes many people uncomfortable, I leave you with a parting gift.

Ron Swanson and I agree on many things, but this is not the way to plan your estate.


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27 responses to “Beneficiaries: the Easy Way to Protect Your Money

  1. Once you’ve got kids, it’s particularly important to set up a will with a lawyer to explain how they inherit money (even if you’re broke, you hopefully have life insurance).

    We have a trust, and named one sister as the trustee, and very explicit instructions on who to contact and how to invest the funds. We have to update our will after our newest addition comes, but thankfully we can do this all for free through Rob’s school. Student Services win!

    1. That’s awesome it can be done for free. I used legal zoom for my will and it was really simple, but I also have a simple will right now. I’ll probably hire a lawyer once a baby is in the picture.

  2. Loving your blog! Just discovered it last week and am working my way through. Funny timing on this post, as I just wrote my will Saturday. All that’s left is to get it witnessed and notarized.

    Funny story, when I texted my brother and asked for his address, he asked what for and I said I was writing my will and leaving him my 401K. His response: “Can I have all your Legos?”

    So, my will says I’m leaving him my 401K and all my Legos. (We’re both in our early 30s, to paint the picture.)

  3. Great post on a topic that I think younger people tend to not pay attention to – yet it’s important to consider it no matter your age. Also, that’s one of my favorite episodes of Parks and Rec!

    1. Mine too. I tried to find a good clip of Ron’s horrified face when Ben informs him the government would get a lot of his money, but no dice.

  4. Great topic! I have my sister as my beneficiary too and will move it over to my fiance once we get married. I also opted in for the legal coverage at my work. It’s an optional benefit that most people ignore (or don’t even realize they have) but it can cover an attorney setting up a will or trust. The $70 for the legal coverage will save me thousands when I set up the will later this year.

    1. Legal coverage at work? I’ve never heard of this benefit, but it sounds wonderful and certainly something more people should utilize.

    1. I’m not sure I knew what it meant before setting up my first 401(k), but I’m intimately familiar with the term now. 🙂

  5. I can’t tell you how many times I’ve asked my brother for his address and SSN – yes, it’s semi-morbid, but hey, I’d rather he have my 401(k) than the government. And I’d say he would agree 😉

    Also, thank you for the Parks & Rec clip – I could not stop laughing!

    1. That’s a great full episode. Check it out when you have a chance! And I agree, give the money to your family and not Uncle Sam (unless of course, you actually do have an Uncle Sam).

  6. It is important to plan for the future by getting a will, to ensure that your assets go to whom you would like when you die. Thank you for sharing.

  7. Great post, it woke up memory on my neighbor who died recently. His daughters didn’t got anything. Because house which they inherited was guarantee for business loan of deceased which came up latter. Second wife inherited business and didn’t payed rates of loan.

  8. I didn’t realize that it was so easy to prevent your estate from going into probate court! I usually thought of setting up a will and beneficiaries as a long, painstaking process with a lawyer, not something that can be done in half an hour. Granted, you mentioned that the will might take longer, and it’s probably good to hire a lawyer for that, but it’s still nice to know that putting beneficiaries on your account is pretty easy. Thanks for the info!

  9. Use a revocable trust, which means that the grantor can take the money out at any time if necessary,” advises Warren. An irrevocable trust ties up the assets until the grantor dies. It may be tempting for parents to put their assets into joint names with a child, but this will actually increase the taxes the child pays.

    If you’re expecting to leave money to people when you die, consider giving annual gifts to your beneficiaries while you’re still living.

  10. This is an awesome tip! I would have never thought to do that!
    Consider buying a safe for your home or apartment and keeping some money in your safe in the event your bank closes and you need to access money quickly.
    Thanks for such great tips and waiting for new updates.

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