A comprehensive financial plan includes not only tax planning and wealth management but also insurance, legacy planning, and estate planning. Many terms get thrown around when we talk about holistic wealth management with our clients, particularly when it comes to designating loved ones and family members in key roles. Often, we find that during meetings with clients, they are confused about who can do what under the various functions, so we’d like to lay out the authority and responsibility based on different designations. Follow us on a journey.
Once upon a time, there was a man named Bob. Bob is married to Sue. They’ve been married for 53 years and have three adult children: Matt, Megan, and Ashley. Ashley was born with special needs and still resides with Bob and Sue at home.
Bob and Sue are joint owners of their taxable investment account. A joint owner or co-owner means both owners have the same access to the account. Bob and Sue can deposit, withdraw, or close the account as an account owner. Joint owners are most likely reserved for someone with whom you already have a financial relationship, such as a spouse or other family member.
Bob and Sue have a special designation on each of their taxable investment accounts called Transfer (or Pass) on Death (TOD). A TOD allows the account owner to designate a specific beneficiary who will receive the funds in the account upon their death, bypassing the probate process. Bob and Sue have each designated the other as their TOD beneficiary.
Sue is the primary beneficiary on Bob’s individual retirement account, and Bob is the primary beneficiary on Sue’s. A beneficiary is a person or entity that you legally designate to receive the benefits from your financial products. Matt and Megan are contingent beneficiaries, meaning they only receive benefits from Sue’s account after Bob dies and/or they only receive benefits from Bob’s account after Sue dies.
Once Bob and Sue hit age 70, they named Matt and Megan as trusted contacts for their financial advisor. A trusted contact is a person you authorize your financial firm to contact in limited circumstances, such as if there is a concern about activity in your account and they have been unable to reach you.Trusted contacts cannot make trades, order distributions, or receive statements and tax documents on others’ accounts. As Bob and Sue continue to age, Matt and Megan need to be able to confirm to their financial advisor that they are (or are not) of sound mind to make their own financial decisions.
Because of Ashley’s special circumstances, Bob and Sue have set aside funds for her future needs and caregiving in a trust and have named Megan as trustee upon their death. A trustee is a person who takes responsibility for managing money or assets that have been set aside in a trust for the benefit of someone else.
Upon the incapacitation of both Bob and Sue, Matt will be named Ashley’s conservator. Conservators are court-appointed individuals who are given the ability to manage another person's finances and personal affairs. Matt can limit Ashley’s spending and, depending on the extent of the conservatorship, any other financial and personal decisions. Trustee Megan and conservator Matt will have to work together once their parents pass away to provide for Ashley’s needs and ensure she is taken care of.
Bob is the oldest of three siblings. His younger brother, Richard, is his power of attorney. A power of attorney is the authority to act for another person in specified or all legal or financial matters. Should something happen to Bob, he has chosen Richard to be able to make decisions for him.
Bob’s younger sister, Cathy, is his executor(or estate administrator). An executor is a specific type of administrator named in a person's will to manage their estate after they pass away. Fortunately, both Bob and Sue have a close relationship with Cathy and trust her to carry out Bob’s wishes when he dies.
Bob, Richard, and Cathy were interested parties when their late father’s will was read. An interested party is a person or organization that may be affected by a situation or who hopes to make money out of it. Because their mother died before their father, the estate was divided between the three children upon his death.
Having these designations helps protect against conflict or other disagreements that can come during times of change and stress for families. Because Bob and Sue have their financial designations in order, they and their loved ones have peace of mind knowing their roles and that everything is taken care of. They are currently living happily ever after.
Financial designations can quickly become a game of alphabet soup, but those of us at Strojny Financial Services are here to help sort them out. If you have questions about the roles and responsibilities of those around you, please do not hesitate to contact our office to schedule a conversation with one of our financial advisors.[1]
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