Are you certain that the beneficiaries you designated to receive your assets are up-to-date? Are your assets titled correctly, and has anything changed since the last time you reviewed them?
As WTOP’s recent article, “7 common mistakes to avoid when naming your beneficiaries,” explains, after any major life change, like a marriage, divorce, birth of a child, or death of a spouse, you need to review your beneficiary designations. It’s also wise to review them on a more regular basis.
We all have opened multiple bank, investment, and retirement accounts that require us to name beneficiaries directly for each account. It is important to remember how important this is, because these direct beneficiary designations supersede a will. They should be reviewed carefully and aligned with your estate plan.
How your accounts are titled, will determine whether they’ll go through probate at your death. However, proper account titling lets you avoid probate and transfer assets directly to your named beneficiaries, since these assets pass outside of your will.
If you fail to name a beneficiary, your assets will go through probate. However, with a retirement plan or life insurance company holding your assets, there may be a contract term that designates a “default” beneficiary, which may not be what you’d want. In addition, there could be some avoidable tax liabilities.
If you name your estate as the beneficiary for your retirement plan, the distributions go through probate and are more limiting than if you had named a spouse or non-spousal beneficiary. Either a lump sum makes the entire retirement amount taxable at that time or within five years of the decedent’s date of death and taxable at the time of distribution.
However, a spousal beneficiary can roll over retirement proceeds directly into her own IRA and take required minimum distributions (RMDs) based on her age, rather than the decedent’s. A non-spousal beneficiary can establish an inherited IRA and withdraw an annual amount based on his life expectancy.
The various types of investments and accounts can be very complicated, so talk with an experienced estate planning attorney to draft the appropriate estate and legal documents. He or she can help you do things the right way.
Designating your beneficiaries in the wrong way, can have far-reaching negative consequences.
Reference: WTOP (February 21, 2018) “7 common mistakes to avoid when naming your beneficiaries”