Beneficiary Review

Many people have a good idea who they want to inherit their wealth but often the beneficiary designations do not keep up with their intentions. Marital changes, death and changes in family status may require an update to these designations. If the primary beneficiary precedes you and no contingent beneficiary is named, then payments would likely be made to your estate, creating unnecessary delays and expenses.

 Things to remember when assigning beneficiaries:

  • Name a contingent beneficiary.
  • Identify a new heir after the death of a primary beneficiary
  • Remove an exspouse after a divorce.
  • Update beneficiary forms after marriage and after the birth of a child.
  • Complete a separate beneficiary form for each plan or account.
  • Consult an estate planning attorney before naming your estate as beneficiary.

 Critical details about beneficiaries:

  • A trust or charity may be an appropriate beneficiary in some cases.
  • Trustees are in charge of managing, investing and distributing money in a trust.
  • Federal Law requires that a spouse be the primary beneficiary to a pension plan account unless this right is waived in writing by the spouse.
  • Nonadult children require special planning. If a minor is named outright, there will have to be a court appointed guardian.

Many nonqualified accounts allow you to designate beneficiaries. For those accounts, a transfer on death (TOD) registration or a joint tenancy may be an option to help your beneficiaries avoid probate.

Creating a lasting legacy with a stretch IRA strategy. Normal IRA rules state that the owner of the account must take minimum required distributions beginning at age 70 ½. Upon death of the owner of an IRA, the surviving spouse beneficiary rolls over to their IRA and takes distributions under the normal rules.

After the second death, the next beneficiary must roll the account to a separate Inherited IRA. Required distributions continue but are now based on the life expectancy of the new beneficiary which is most likely much longer. This stretch IRA can result in substantial wealth passed to the next generation without a large onetime distribution taken at substantially higher tax rates.

The purpose of a beneficiary review is to assist an individual in reviewing his or her accounts, determining how they will be distributed upon death. A beneficiary review is not intended to replace an estate plan but to help ensure the right people are named to give them appropriate options.

Gary Webb owns Webb Financial Group, a local Wealth Management firm in Bloomington MN. Gary is a regular source of advice used by local Upsize Magazine and Star Tribune as well as national (CNN Money) media sources. For assistance with the type of service mentioned in this article as well as other Financial Planning services, please feel free to contact Gary Webb directly at 9528373215 or through email: [email protected]