A Financial Planner Says You Need To Update These Assets When Your Spouse Gets Ill

It can be uncomfortable to discuss finances with a sick spouse — particularly the potential ramifications if they should die. However, while these conversations can be upsetting, the consequences of avoiding them can be even worse. If your spouse is ill, it's essential to ensure that all of their account beneficiaries are up to date. As Evan Beach, a Certified Financial Planner (CFP), explained via Kiplinger, "If your spouse is sick, these things may understandably be the furthest from your mind, but I view them as non-negotiables." Beach, who has worked with clients that were financially blindsided after the death of a spouse — even those with estate plans in place — explained, "Most of our clients' assets transfer via trust or beneficiary designations, not their will. This is why it is so important to make sure these are set up according to your wishes." 

There are various accounts, policies, and titles that should be reviewed if your spouse is sick, especially if you are hoping to avoid the lengthy and costly probate process. In particular, life insurance policies and retirement accounts — such as 401(k)s and IRAs — should be at the top of the list. These accounts have designated beneficiaries who automatically receive the funds when the account holder dies. Even if your spouse has a will or a trust directing that assets should pass to someone specific, designated beneficiaries will override it. This means that if those designations are outdated when your spouse dies, it could wreak havoc on your estate plan and even lock you in legal limbo.  

Even if your spouse dies without a will, having someone named as the designated beneficiary on specific accounts can ensure the assets end up where your spouse intended. However, while updating beneficiaries is relatively simple, it's frequently overlooked. Since the best age to buy life insurance is generally younger in life, there are many cases in which someone might forgot to update their beneficiary. Similarly, someone might have a retirement account from a previous job that was initially set up while they were married to someone else. As a result, those funds could end up with an ex in the event of death — leading to problems for someone's widow/widower.  

When it comes to banking and investment accounts, beneficiaries work a little differently. With these account types, a beneficiary is not required, so it is particularly important to ensure that your spouse has a designated beneficiary listed on those accounts. This can be done by completing forms that name the Payable-on-Death (POD) beneficiary in the case of bank accounts, or the Transfer-on-Death (TOD) beneficiary for investment accounts. This way, the assets can pass directly to the beneficiary and therefore bypass probate. Real estate documents should also be reviewed to verify that beneficiaries are listed on any property deeds. If your spouse purchased a home or vacation property before you were married and never updated the deed, the property would not automatically pass to you upon their death — even if their will directs it to. Instead, the property would have to go through probate.