CPAs: Help Your Clients Choose the Right Beneficiaries

Filed under: The Advisor's Blog

This time of year you will have direct contact with most of your clients, which gives you the perfect opportunity to remind them to review the beneficiaries on their accounts and policies.

As a CPA, you play an important role in your clients’ financial and estate planning decisions. When clients name beneficiaries to retirement or other financial accounts, they may not be aware of all possible ramifications of that decision. This is where you have the opportunity to step in, and help clients understand all possible outcomes of this important choice.

As life situations change, your clients may not realize that beneficiaries also need to be changed.  A subtle reminder from their CPA could avoid big headaches down the road.

Ask your clients these questions when you sit down to review beneficiary designations.

Family photoWho are your current beneficiaries?

This is usually a spouse, but sometimes a child or even a friend of the family. In some cases, a client may have forgotten who they named as beneficiary on various accounts. This information should be reviewed regularly.

Why did you choose them?

Clients will have varying answers to this question. The “why” doesn’t really matter; what matters is that the circumstances haven’t changed since they named their beneficiaries. If their reasoning still holds true, then there may be no need to change beneficiaries.

Has anything changed in your relationship or financial obligations to that person?

This can be a difficult question, but it is an important one. In some cases, the beneficiary may no longer be seen as a trustworthy person. Or perhaps your client simply feels their financial obligations now lie elsewhere.

Is that person able to fulfill any obligations in connection with receiving the money or assets?

It can be important to investigate not only your client’s financial situation, but also that of their beneficiaries. For example, a beneficiary who is facing significant debt and financial troubles may be better helped by establishing a trust in their name, rather than naming them as a beneficiary of an account or life insurance policy.

Since naming your beneficiaries, have you married, divorced, or had more children?

In many cases, divorced people have not removed their ex-spouse from important financial documents. In some cases this may make sense, such as when a single person wants the other parent of their children to have access to funds after their death. But it may no longer make sense once the children are grown, or if your client has since remarried.

Ask clients if they understand the ramifications of naming certain individuals as beneficiaries.

For example, your client may not know that children named as beneficiaries on an IRA plan will be able to access those funds when they turn 18 or 21 (depending upon their state of residence). Make sure your client understands all possible outcomes of naming certain people as beneficiaries. Pay special attention to all possible tax-related outcomes, to be sure the client is making best use of his assets and that beneficiaries are not assessed with excessive income taxes.

Review all of these questions regularly.

Making beneficiary designations is not a once-and-done proposition. Stay in touch with your clients and review this information on a regular basis, to be sure their beneficiary designations remain compatible with their other estate planning decisions.  If we can be of any assistance with this process, please contact our office.

Investment Advisory Services offered through John P. Dubots Capital Management, LLC, CA License # 0822926