There is a lot of buzz out there about decluttering and finding joy in your stuff. I fully support people getting rid of stuff and stopping getting new junk to clutter up their homes. I also want to suggest that you get your financial house in order, especially if you are retired. Most people have a lifetime of old 401ks, IRAs, bank accounts, and investments cluttering up their desk drawers.
Often, I see people with dozens of accounts scattered all over the place, insurance policies they can’t remember why they purchased them, and old retirement plans from jobs long gone. Spend some time this spring decluttering and finding joy in your finances.
First, gather all your accounts into similarly titled accounts. You only need one IRA account, one joint or individual account, and one Roth account. The exception is you must generally maintain retirement accounts at your current workplace until you have a separation of service. A brokerage account that allows you to hold mutual funds, stocks, CDs, and alternative investments is a perfect place to put those accounts. It will be easier to monitor. People mistakenly think they are diversifying by placing small IRAs at firms all over town. Generally, they are causing a nightmare for whoever must clean up the estate when they pass.
Next, make sure that all your beneficiaries are correct on IRA’s and workplace retirement accounts. If you have multiple children and plan on leaving equally, have it on the beneficiary form. Do not leave to one child and expect them to divvy it up. They are not legally obligated to do so, even if your will says to. In addition, you are potentially causing a tax problem and family fights.
For non-retirement accounts, you should add a Transfer on Death (TOD) or Pay on Death (POD) option. This functions like a beneficiary on an account. For example, you can have a joint account with your spouse with a TOD to your three children. If you pass away, your spouse is still the owner of the account. The children have no privileges to the money while one of you are alive (unless you make them a joint owner). Only once the second person passes away, do they gain access to the account. The asset does not go through the lengthy probate process.
Make sure to speak with an attorney about how best to pass your real estate on as it can be more complicated. Again, having just one child as a joint owner can cause bad feelings later. A well-crafted trust can help avoid this.
Do a review of all your insurance policies as well. Consider the premiums, cash values, and purpose of them. Life insurance can have many uses, from family protection, liquidity needs if someone dies prematurely, or business continuity planning. Make sure the beneficiaries are correct as well. Don’t just cancel with out reviewing with a professional. You might have options such as a smaller paid up policy or using the cash value to leverage an insurance product you might need later in life, like a long-term care policy or a fixed annuity.
A little effort now, can save someone a lot of hassle later. In addition, you may find new file space and joy again in your financial life.