Have you designated a trusted contact and named beneficiaries for your financial accounts? If you haven’t, you should consider doing so sooner rather than later.
Over the past week, we have reviewed the profile information for every client account managed by Apprise. After that, we will send emails to these clients asking that they review and update this information on their accounts as necessary. Why would we do this? I know we don’t have this information for every client account. How does that happen? Some accounts transfer from another advisor. Others come from Charles Schwab’s retail side without that information. Sometimes clients don’t have beneficiary information when we open their accounts. Plus, Schwab’s new digital account-opening process doesn’t ask for trusted contacts.
You should consider providing this information for your accounts as well.
Why Designate a Trusted Contact?
I’ve said that naming trusted contacts and beneficiaries is important. Do you even know what trusted contacts are or why they’re needed?
You don’t have to name a trusted contact. But FINRA, the North American Securities Administrators Association (NASAA), and the SEC Office of Investor Education and Advocacy all urge you to consider providing a trusted contact for your accounts.
A trusted contact can be a family member, attorney, accountant, or any other third party. You should choose someone you believe would respect your privacy and know how to handle the responsibility. Naming a third-party professional can also add accountability for ethical behavior.
Securities regulators added trusted contacts to accounts a few years ago. The move served as part of their effort to fight financial fraud against seniors. According to this article, in the U.S., annual losses due to elder fraud total $113.7 billion.
If you cannot be reached, a trusted contact can be contacted in limited circumstances. For example, if there is a concern about activity in your account someone would reach out to your trusted contact. Having a trusted contact provides another level of safety on your account. It also puts your financial firm in a better position to help keep your account safe.
If you have an investment account, I recommend you add a trusted contact. A trusted contact cannot act on your behalf. Nor can they engage in any account-related activities.
When Might You Need a Trusted Contact?
Say you’re away on vacation. Or you find yourself displaced by a natural disaster. Perhaps you are having a health issue or there is reason to be concerned about fraud. A trusted contact can help your firm connect with you.
A trusted contact can also confirm your contact information or health status. They may also validate the identity of any legal guardian, trustee, holder of a power of attorney, or executor.
When you name a trusted contact, you authorize the firm to contact someone you trust. When that happens, information about your account will only be disclosed in limited circumstances. A firm can only disclose reasonable categories of information with a trusted contact. This includes information that will assist the firm in administering your account.
If you decide to designate someone as a trusted contact, you should reach out to them in advance to let them know. You should also consider telling your family. That way everyone knows who will be contacted. That adds transparency. Knowing you named a trusted contact might also discourage anyone from trying to do something wrong.
Having an Advisor Can Help
Financial advisors are also on the alert for signs of cognitive decline and financial exploitation of their clients. Industry regulations allow an advisor to reach out to your trusted contact. Advisors should do so if they have concerns that you may be a victim of, or may be vulnerable to, financial exploitation. The same applies if there is concern about your mental or physical well-being. Putting this process in place helps to protect your assets.
Why Designate Beneficiaries?
Naming a beneficiary to your account is a simple, effective, and flexible way to keep your assets out of probate after death. This can reduce the cost of probating your estate. It can also allow assets to pass to your heirs based on your wishes after your death. In other words, naming beneficiaries can save both time and money.
Specifying a beneficiary can also keep money out of your estate. This can keep it from being used by a court-appointed executor to settle claims, pay bills, etc.
If you want your money to go to a certain person, they may get a lot less than you intended once those claims are paid. Beneficiary designations take precedence over what’s spelled out in your will. Naming a beneficiary makes that person first in line to receive the assets in your account when you die.
Life Events and Beneficiary Designations
If you have a life event, you should update your beneficiaries. (Life events include marriage, the birth of a child, divorce, and death.) If you get divorced and don’t change your beneficiaries, your beneficiary designations trump what’s in your will. Your ex- can still receive what’s in your account if you don’t update your beneficiary designation.
If you’re married, you usually have the freedom to change beneficiaries without your spouse’s permission. If you die during your divorce, your accounts will almost always go to the beneficiary. Please keep an exception to this general rule in mind. Under federal law, you need a spouse’s signed consent to change the beneficiary of some tax-deferred accounts.
Naming beneficiaries helps you stay on top of your affairs. It can help your surviving family manage your estate more easily. It can also help avoid fights. Naming beneficiaries can help your family understand your wishes. It can also help avoid the infighting that can result when a relative leaves assets to family members.
You can also name contingent beneficiaries. If something happens to your primary beneficiary, contingent beneficiaries are next in line. If you have not named a contingent beneficiary for your accounts, consider adding one. Naming contingent beneficiaries provides protection in case something happens to your primary beneficiary.
Summing Things Up
You can easily skip over the sections of a new account application that ask you to name trusted contacts and designate beneficiaries. These small steps can save a huge headache – and potentially a lot of money – in the future. Naming beneficiaries can also reduce confusion. It leaves no doubt about where you want your money or insurance proceeds to go.
You should also review these designations periodically. You should take inventory of your financial accounts. Make sure your wishes are current. Doing so can also help reduce the chances that problems arise in the future.
Whether you work with a financial advisor or self-manage your accounts, you should name trusted contacts and designate beneficiaries. You should review this information periodically to make sure it stays current.
Please don’t hesitate to reach out to me if you have any questions or need additional information.
I’ll be back next week with “Apprise’s Five Favorite Reads of the Week.”
It continues to be a rough start to the year for investors. I shared some thoughts about the market and increased volatility levels in this blog. If you’ve thought about a Roth conversion but haven’t pulled the trigger now could be a good time to do so. Lower stock prices allow you to convert more shares. That means your conversion could provide more bang for the buck. This blog discusses some of the potential benefits. You can also read more about Roth conversions here or here.
Please note that in the next few weeks I plan on changing the schedule for Apprise’s weekly blog. Soon, I will start distributing it on Tuesdays rather than Fridays.
Our practice continues to benefit from referrals from our clients and friends. Thank you for your trust and confidence.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.