What is the one action you can take now that will be one of the most important family-friendly, financial decisions you make? Is it naming a beneficiary for your retirement accounts, such as IRAs and 401(k)s? Yes, and the same goes for your policies of life insurance designations and any plan or account that provides a death benefit. The key is making sure the beneficiary designations are updated as you progress through life.
A married person may want to designate their spouse as the primary beneficiary. In actuality, it is a requirement that your surviving spouse be the primary beneficiary on an employer-sponsored retirement plan, like a 401(k). However, your spouse may consent to waive that requirement. Your spouse’s consent must be in a signed written statement filed with the employer. The tax benefit of having the surviving spouse as the primary beneficiary is significant. A surviving spouse may transfer the deceased spouse’s retirement funds to a retirement account in the surviving spouse’s name and no tax is paid because of the transfer.
A surviving spouse, as primary beneficiary, may use the inherited funds without restriction. That may be the good news; but, the bad news is the surviving spouse may remarry and promptly name their new spouse as the primary beneficiary instead of the children or grandchildren.
There is a common misunderstanding associated with naming one’s “Estate” as the primary beneficiary. The thinking is that naming your Estate as the primary of your retirement accounts is a one and done method and then it’s all handled in the probate court. The truth is that naming your Estate is a tax nightmare for your loved ones and it’s a bad idea.
If you want to name your trust as the beneficiary, you will be better served by doing so only after a discussion with your estate planning attorney. Be certain the language in your trust will benefit your named beneficiaries in the way you know is needed to protect them from the problems that can arise when one receives money at the wrong time or for the wrong reason.
To ensure the right people in your life receive the benefits of your hard work, take the time to review the designations on all of your retirement plans, IRAs, investment accounts, insurance policies and any other assets that ask you to name a beneficiary. At the very least, do this one thing for your family and loved ones.
In addition to getting your beneficiary designations up to date, we invite you to talk with an estate planning attorney at Stross Law Firm, P. A. about our Peace Of Mind program, which is a way to make sure everything going on in your life that may affect your estate planning is reviewed annually. If you are a business owner, or thinking about starting your own business, remember a business has the potential of being the biggest asset of your estate. We would also welcome your inquiries about how to integrate your business planning with your overall estate planning.