First, I think we should talk about which accounts have named beneficiaries and what happens to accounts that do not. Typically, all retirement accounts have named beneficiaries and do not go through your will. That being said, you do have to name the beneficiaries. If you do not have named beneficiaries, then most likely, the account will pass by your will. If you do not have a will—then the state you live in dictates what happens.
Retirement Accounts include:
- ROTH IRA’s
- SEP & SIMPLE IRA’s
- 401k’s, 403b’s, Profit Sharing accounts, etc.
You get the picture—all the above accounts and accounts like them have named beneficiaries and when you die, the beneficiaries get the portion of the account that is allocated to them without involving the courts or the will.
Non-Retirement/Taxable Accounts include:
- Individual Account
- Passes by the will unless there is a beneficiary named (Transfer on Death, Payable on Death)
- Joint Accounts
- Joint with Rights of Survivorship
- If one owner dies, their share goes to the other joint owner(s).
- Tenants in Common
- Each owner has an interest and when one owner dies, their share of the account passes through their will
- Tenants by the Entirety
- This registration is almost a blend of the above two. Married owners can own jointly and get the benefit of survivorship when one spouse dies. However, during their lifetime, if one spouse has a creditor come after them, then the other spouse’s share of the account is protected (presuming only one spouse is responsible for the debt).
- Trust Accounts
- After tax accounts titled in the Trust. The Trust Agreement dictates who the trustee is, and the trustee is responsible for essentially following what the trust says to do.
- 529 Accounts
- There is an owner (adult) and a beneficiary (can be a child, can be an adult). The owner is allowed to change the beneficiary to an eligible family member. Also, you can name successor owners when opening the account.
- Insurance policies have named beneficiaries that do not pass by the will.
- Annuities get their own category because they can be both retirement and non-retirement money. Qualified (retirement) and Non-Qualified (non-retirement) could be listed on your statement and may help you differentiate(mostly for tax purposes). Either way, annuities do have named beneficiaries because there is an insurance aspect to these products.
This is not to meant to be a complete list of all account types available, but it does cover the majority that most people will encounter. As part of Financial Journey’s Comprehensive Financial Planning process, reviewing beneficiaries and account types is something we do each year. If you have any questions, please reach out!
Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment, legal or tax advice.