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Keep Your Beneficiaries Updated: The Key to Protecting Your Legacy Thumbnail

Keep Your Beneficiaries Updated: The Key to Protecting Your Legacy

Managing your investments and bank accounts is not just about growing your wealth, but also about ensuring that your hard-earned assets pass on to your loved ones with ease. One of the most effective ways to do this is by keeping your beneficiaries updated on all of your accounts. In this blog post, we will discuss the importance of adding beneficiaries to your accounts, the types of accounts that can have beneficiaries, the differences between primary and contingent beneficiaries, and the significance of 'per stirpes' or 'per capita' designations. By the end, you'll understand why contacting a financial advisor, like Horizon Financial, can be instrumental in managing your assets and securing your legacy.

The Importance of Adding Beneficiaries to Your Account

Adding a beneficiary to your account allows your assets to bypass the probate process. Probate is the legal procedure in which a court verifies a will and ensures that the deceased's assets are distributed correctly. This process can be time-consuming, expensive, and may leave your loved ones in financial uncertainty.

By adding a beneficiary to your account, you can avoid probate, allowing your assets to be transferred directly to your designated beneficiaries, often more quickly and with lower administrative costs. This not only ensures that your wealth is passed on according to your wishes but also provides financial security to your loved ones during a difficult time.

Accounts That Can Have Beneficiaries

Several types of accounts and policies can have beneficiaries added, including:

  • 401(k) and other employer-sponsored retirement plans
  • Individual Retirement Accounts (IRAs)
  • Bank accounts
  • Insurance policies
  • Non-qualified brokerage accounts

Transfer On Death Beneficiary and Other Terms

A Transfer On Death (TOD) beneficiary is a designation for bank accounts and non-qualified brokerage accounts that allows your assets to be directly transferred to the designated beneficiary upon your death. This allows the assets to bypass probate, making the transfer process more efficient and cost-effective. Some banks may use different terms for this designation, such as "Payable On Death" (POD) or "In Trust For" (ITF). It's not widely known that you can add a beneficiary to your bank account, so it's essential to speak with a customer service agent at your financial institution to ensure that your account has the appropriate beneficiary designations in place.

Primary and Contingent Beneficiaries

Primary beneficiaries are the individuals you designate to receive your assets upon your death. Contingent beneficiaries, on the other hand, are the backup recipients who will inherit your assets if your primary beneficiaries predecease you or are unable to inherit. It's essential to designate both primary and contingent beneficiaries to ensure that your assets are distributed according to your wishes, even in unforeseen circumstances.

'Per Stirpes' and 'Per Capita' Designations

These designations determine how your assets will be divided among your beneficiaries:

  • Per Stirpes: Assets are distributed equally among the descendants of a deceased beneficiary. For example, if you designate your three children as per stirpes beneficiaries, and one of them predeceases you, their share would be equally divided among their children (your grandchildren).
  • Per Capita: Assets are divided equally among the surviving beneficiaries at the same generation level. In the same example, if one of your children predeceases you, their share would be redistributed among your surviving children.

Check Writing Privileges vs. Joint Account Ownership and Authorized User vs. Joint Credit Card Holder

Understanding the differences between check writing privileges and joint account ownership, as well as authorized users and joint credit card holders, is crucial in estate planning.

Check writing privileges allow a person to write checks on behalf of the account holder, but this person does not have legal ownership of the account. In contrast, a joint account owner has legal rights to the account and its assets. If the account holder passes away, the assets in a joint account typically transfer to the surviving joint owner, bypassing probate. However, with check writing privileges alone, the assets in the account would still need to go through probate before being distributed.

Similarly, an authorized user on a credit card can make purchases and use the credit line, but they are not legally responsible for the debt. If the primary cardholder passes away, the authorized user is not liable for the outstanding balance. On the other hand, a joint credit card holder shares legal responsibility for the debt with the primary cardholder. In the event of the primary cardholder's death, the joint credit card holder would still be responsible for the outstanding balance.

Both distinctions are important because they determine who is legally responsible for the account or debt and how the assets or liabilities will be handled upon the account holder's death. Properly designating your accounts and credit cards can ensure that your financial affairs are managed according to your wishes and can protect your loved ones from unnecessary financial burdens.

How Horizon Financial Can Help

As you can see, keeping your beneficiaries updated and understanding the intricacies of beneficiary designations is crucial in protecting your assets and ensuring your legacy. The expert advisors at Horizon Financial can help you navigate these complexities and make informed decisions that align with your financial goals and values. Don't wait to secure your future – contact Horizon Financial today to start planning for tomorrow.