Why Designate Beneficiaries?
By: Samantha K. Wolfe, LL.M. in Taxation
I have a pretty large extended family. I love big families almost all year. I say almost all year because when you have a large family Christmas can wreak havoc on your wallet. Thankfully a few years ago my mom and her sisters had the idea to do a name exchange for Christmas. That means that everyone draws a name and buys them a gift below a set amount. Last year I drew one of my uncle’s name. I was thrilled because he likes Home Depot. He likes Home Depot so much that sometimes over his lunch break he goes to Home Depot to wander around the aisles. This made my Christmas shopping easy; all I had to do was buy him a gift card from Home Depot and I knew he would be ecstatic.
Whenever I go home for the holidays I stay with my parents. My mom is beyond wonderful because last year she offered to pick up the Home Depot card for my uncle and wrap it for me. She was planning to go to the mall to get someone a Bath & Body Works gift card and Home Depot was adjacent to the mall. It seemed like a good plan. The problem—when my mom wraps a gift she never writes the person’s name on the gift. I think she probably assumes she will remember who the gift goes to when she is ready to give it. That may be the case when the object you are giving has an identifiable shape. When you wrap a gift card, however, it looks like every other gift card you have wrapped. I’m sure you can see where this is going.
I grabbed the Bath & Body Works gift card when we left my parent’s house, but didn’t know it. My uncle was supposed to receive a Home Depot gift card. He opened a Bath & Body Works gift card instead.
I was reminded of this story this past week when I met with my retirement plan financial advisor. My advisor had asked me to review my beneficiary designations to make sure who I had listed as the beneficiary was who I wanted. My first point is this: Make sure you identify who you want as your beneficiary. If you don’t designate a beneficiary, it is like you wrapped a gift and then didn’t mark who was to receive the gift.
Second, make sure to review the designation at least annually. Failing to review you beneficiary designations periodically is like failing to make sure the gift you are giving is meant for that person. You don’t want to give the wrong gift to someone.
An asset is like a wrapped gift. After awhile, if you have more than one, it may be difficult to remember what you intended for each gift. Designating and updating beneficiary designations may seem trivial and unnecessary. Then again, my mom thought marking the wrapped gifts was trivial and unnecessary. She would remember which wrapped gift when to which individual. She didn’t and you won’t remember what you intended for each asset.
You have no need to worry; I made sure my uncle got the Home Depot gift card. Remember, it is much easier to fix a situation where you gave the incorrect gift to an individual. You are still there to recognize the mistake. You won’t have the same opportunity with beneficiary designations. Designating beneficiaries for retirement plans and reviewing those designations, ensures that you won’t give a Bath & Body Works gift card to someone that would appreciate a Home Depot gift card more.
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