Life events require immediate attention to financial planning to prevent costly mistakes and family disputes down the road. Whether you are getting married, welcoming a new child, or facing the loss of a loved one, these transitions demand a thorough review of your financial accounts and legal designations.
For expert insights on this topic, you can listen to Heritage Bank NA’s Kelly Pickle, Director of Enterprise Risk, discuss these important considerations on KWLM’s Ask the Expert series. Kelly highlights why staying proactive with your financial planning can save you significant headaches later.
What Qualifies as a Major Life Event?
Major life events create ripple effects throughout your financial landscape. Understanding which events trigger the need for account reviews helps ensure nothing falls through the cracks.
Marriage brings together two financial worlds, requiring decisions about joint accounts, beneficiary updates, and estate planning coordination. New couples must determine how to structure their finances while protecting both parties’ interests- today and in the future.
Divorce presents the opposite challenge: separating intertwined financial lives legally, safely, and fairly. Joint accounts need to be closed or restructured, and all beneficiary designations need to be updated to prevent unintended access to assets.
The birth or adoption of a child creates new financial responsibilities and beneficiary considerations. Parents typically want to ensure their children are protected through updated wills, life insurance policies, and retirement account designations.
College planning affects your financial accounts. Review and update 529 plans, custodial accounts, and beneficiary designations to match your current wishes. If your child is turning 18, update powers of attorney and healthcare directives so you can help with financial or medical decisions if needed. Also, check any joint accounts your child can access, and discuss responsible money management as they gain independence.
The death of a spouse or family member often triggers inheritance issues and the need to restructure accounts. Surviving family members may need to remove deceased individuals from joint accounts and update beneficiary information.
Retirement fundamentally changes your financial structure, often involving account rollovers, new beneficiary priorities, and different estate planning needs as you transition from accumulating wealth to preserving and distributing it.
Inheritance or a significant financial gain can change your estate planning needs. It may also require new account structures to manage your increased assets effectively.
Joint Accounts
Joint accounts make managing money easier, but account holders should also understand the risks of joint accounts:
- The ownership structure of a joint account determines what happens to the funds upon the death of a joint account holder.
- Adding a joint owner for convenience gives them full legal access, even if your relationship changes. This may also affect the distribution of funds when other joint account holders pass away.
- Joint accounts may impact inheritance and expose funds to creditors.
The Importance of Updating Beneficiaries
Beneficiary designations carry more legal weight than many people realize. These designations override instructions in your will, potentially creating unintended consequences when they become outdated.
Common mistakes include forgetting to update beneficiaries after divorce, failing to add new children or grandchildren, and failing to designate contingent beneficiaries who will receive assets if the primary beneficiaries predecease you. Some people inadvertently list minor children as direct beneficiaries without considering that minors cannot directly inherit large sums – courts may need to appoint guardians to manage these assets.
If your bank and/or retirement accounts still list your ex-spouse as a beneficiary, they will receive those funds regardless of what your will states about asset distribution.
The process for updating beneficiaries varies across account types, requiring attention to multiple financial institutions and policies. For bank accounts, contact your local branch to confirm and update, as appropriate.
For 401(k) accounts, contact your employer’s human resources department or the plan administrator to request beneficiary update forms. These accounts may require spousal consent for changes, adding an extra step to the process. Don’t forget about 401(k) accounts with previous employers.
IRAs typically require direct contact with the financial institution holding your account. Many banks and investment companies allow online beneficiary updates, but some still require physical forms with notarized signatures.
Life insurance policies need to be updated through your insurance company or agent. These updates are crucial because life insurance proceeds often represent significant financial resources that families depend on for immediate expenses and long-term security.
Bank accounts, investment accounts, and other financial products each have their own procedures, making it essential to contact each institution directly to understand their specific requirements and timelines.
Financial Checklist for Life Changes
Creating a systematic approach to financial updates ensures nothing gets overlooked during emotionally challenging times. This financial checklist for life changes provides a comprehensive framework for protecting your interests.
Review all joint accounts by listing every account where you share ownership with another person. Determine whether these arrangements still serve your needs and whether any accounts should be closed, restructured, or have signatories added or removed. Think about whether you still trust the joint account holders. Also, consider if their money problems could risk your assets.
Update beneficiaries across all accounts systematically. Create a list of all accounts that allow beneficiary designations, including retirement accounts, life insurance policies, investment accounts, and bank accounts with payable-on-death features. Verify current beneficiary information and update forms as needed, ensuring you name both primary and, when possible, contingent beneficiaries.
Revisit your estate plan and will to ensure these documents align with your current life situation and wishes. Major life events often change your priorities for asset distribution, guardianship preferences for minor children, and healthcare decision-making authority.
Consider a power of attorney and healthcare directives to ensure trusted individuals can make financial and medical decisions if you become incapacitated. These documents become especially important after marriage, divorce, or the death of previously designated decision-makers.
Document your actions and keep records of all updates in a secure, accessible location. Family members should know where to find this information during emergencies.
When to Get Professional Help
Consult a financial advisor to help with estate planning after major events, or every 3–5 years. They can help with complex situations, large assets, or changing laws.
Act Today
Life events bring both opportunities and risks. Protect your financial future by updating your accounts and documents now. Even small steps, like updating one beneficiary, make a significant difference. Discover Heritage Bank NA’s list of services here.
Disclaimer: This blog is intended for informational purposes only and should not be considered legal or tax advice. Readers are encouraged to consult with a qualified financial advisor, tax professional, or legal counsel to address their specific needs.
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