Protecting Your Assets Even After You’re Gone

Are Your Beneficiary Designations Current?

Building assets for retirement may seem like challenge enough, but once you've got that figured out, you still have to designate beneficiaries. Who will take control of the assets after you're gone?

When was the last time you checked your designations of beneficiary? Most employees and annuitants don't realize that they have several designations to keep current. If you don't have a designation on file, then the funds will be distributed according to the order of precedence, which may mean giving the money to someone that you no longer wish to give it to.

Named beneficiaries on insurance policies and retirement accounts generally supersede instructions in wills, which is why it is important to file and keep your beneficiary designations up to date. By periodically reviewing your beneficiary designations for personal insurance plans, annuities and other financial accounts, you can rest assured that your assets will be distributed according to your wishes.

It is important to review and update your beneficiaries when…

…you experience a major life event such as a birth, marriage, dissolution of marriage or domestic partnership, or death in the family.

…you update your will or estate plan. Consult with your legal advisor when you create a will to make sure that you understand whether the beneficiary designations you make on insurance plans or financial accounts are affected by your will.

…you roll over a 401(k) or Individual Retirement Account (IRA).

…you receive a beneficiary verification notice.

What is a Beneficiary?

A beneficiary is a person or legal entity that is entitled to receive the proceeds from estate, trust, retirement account, life insurance policy, or transfer on death accounts. A beneficiary can be one or more individuals or organizations, such as a trust or charity. You can designate two types of beneficiaries:

• Primary beneficiaries are first in line to receive the designated asset upon your death.
• Secondary (or contingent) beneficiaries receive the asset if there are no surviving primary beneficiaries upon your death.

The Basics

Most retirement plans, annuities, and life insurance policies let you decide what should become of your assets through the designation of beneficiaries in the event of your demise. The primary beneficiary or beneficiaries inherit first. If they are dead or they die with you, your assets go to any secondary beneficiaries you have named. You will need to name names and determine what percentage or amount of your assets go to each beneficiary. Beneficiaries can include those who leap to mind first—spouses, children, and other relatives. This list could also include friends, trusts, charities, and institutions.

Beneficiary designations generally kick in immediately after death and override a will. That means your assets will not have to go through probate, a legal proceeding that can be expensive. However, it also means that you need to ensure that your beneficiary designations reflect your most recent wishes because your will cannot override them.

Considerations

Spouses can generally inherit assets from one another without generating estate taxes or, in the case of retirement accounts, being forced into taking mandatory taxable payouts. (Unless the inheriting spouse has turned 70½, in which case normal distribution rules apply.) Other heirs, though, may face some consequences. Loading too many assets on to some heirs may make their own estates liable to the federal estate tax.

Underage children, who may include anyone up to age 21 in some states, cannot directly inherit assets from an annuity, a retirement plan or a life insurance policy. Consult with an attorney, if necessary, to set up trusts for them, which can then be named in your beneficiary list.  

Where to Start

Keep copies of your beneficiary designation forms. If you do not have copies of your current beneficiary designations, request copies from your account providers or complete a new beneficiary designation form. Since the designations you make can override your will, check with your financial advisor, custodian, or attorney before you submit your beneficiary designation to determine whether it will produce the results that you desire. If you have already submitted your beneficiary designation, you can still check its status. You should not assume that your IRA custodian will notify you if the designation is ambiguous or does not meet requirements. In most cases, the problem is noticed only after the account owner is deceased and the beneficiary is ready to claim the assets. By ensuring that your beneficiary designation is in good order, you help to ensure that your beneficiary will be able to access the assets at any time.

Rick Parmanand is founder of The Retire Advisory Group, LLC. in Sarasota, Florida. Offering annuities, life insurance, IRA and 401(k) rollovers, advice on avoiding unnecessary taxes, and more, Rick and his team create unique retirement and financial solutions to help clients meet their goals and spend their golden years enjoying life. For more information on The Retire Advisory Group, LLC., contact Rick at rick@retireadvisorygroup.com or call him at 941-371-2792.