Don't Leave Designated Beneficiaries to Chance

 

Most of us would not knowingly gamble with our life’s savings and gains, but sometimes we inadvertently do just that. How and when? Under the law, the names designated as beneficiaries on individual bank, brokerage, retirement, and other financial accounts take precedence over a will. Therefore, to ensure an individual’s wishes are followed, it’s important to often update beneficiaries to match on all documents.

What are the two most important reasons to take advantage of updating beneficiaries on financial accounts to match your will?
(1) Ensuring beneficiaries of choice receive the maximum inheritance and benefits from the estate.
(2) Capitalizing upon the tax-savings provided by a will.

The Solution? Review Account Beneficiaries Regularly.
To avoid “rolling the dice” and benefit from utilizing financial account beneficiaries to bypass the sometimes long and costly probate process, integrate them into an estate plan. Additionally, every few years (and specifically after a life-changing event such as a marriage, divorce, or birth or death of a loved one), individuals should create an opportunity to inventory financial accounts and beneficiaries to ensure they are aligned with their will. Another recommended best practice includes naming contingent beneficiaries on life insurance policies and retirement accounts. Also consider that when a 401(k) or an IRA account is rolled over, the beneficiary designations don’t carry over and must be re-named.

Who To Designate? That’s Your Business, But Here Are A Few Tips.
When contemplating whom to name as a beneficiary on an account, it is not recommended to leave assets outright to minors. A court then has to appoint someone to watch over their funds—adding unnecessary expense. One solution is to create a trust for each minor payable at age 25. These trusts can be named beneficiaries of the accounts for the minors. Also consider that disabled beneficiaries require special trusts that preserve their ability to receive government benefits.

Regarding retirement plans, it is not a best practice to name your estate as the beneficiary because the law then requires that within five years the entire amount of the plan must be paid out. (And that also means the taxes would have to be paid within five years.) However, by designating retirement plans to individual beneficiaries, both the proceeds and the taxes may be stretched out over many years—maximizing the benefits and minimizing the taxes.

Do you have questions about naming beneficiaries or about estate planning in general? Check with the estate tax planning and compliance professionals of Carr, Riggs & Ingram. It will only take a few minutes to make a lifetime of difference to someone you love. And that’s a sure bet.