Here for YOU Today and There for your FAMILY Tomorrow

When was the Last Time You Checked Beneficiary Designations?


When Was the Last Time You Checked Beneficiary Designations

This is perhaps the single simplest estate planning error. It is also the one that is the easiest to fix: check your beneficiary designations on any assets with a designated beneficiary. Although it is very simple, but you’d be amazed at how many times an ex-spouse, distant relative or the IRS ends up with the asset. Your will does not override the designation, so don’t expect your will to fix the mistake. Beneficiary designations pass by operation of law, think of them as contracts. There are exceptions to this, but it is better to have reviewed and updated your beneficiary designations rather than assert one of the exceptions.

The Chicago Tribune gives us five things to know about naming beneficiaries on retirement plans and insurance policies in “Who will get your money when you're gone? Some things to know.” This is one of my favorite resources since I grew up in the North Suburbs of Chicago.

You can have a “do-over.” The owner of an account or policy can change the beneficiary any time they want by contacting the plan administrator or life insurance company assuming that they have mental capacity to do so. To be safe, name a contingent beneficiary as a second in the event that your named beneficiary has died. It amazes me how often I meet with clients that name their spouse as the primary beneficiary of a Life Insurance policy or a Retirement Plan and they do not have a contingent beneficiary. The worse case scenario is having a Retirement Plan payable to an estate because about 40% of that distribution will be income taxed for the year of the distribution. Terrible Result!!

Taxes. The tax implications for beneficiaries vary. Life insurance proceeds are received by the beneficiary without tax liability after he or she submits proof of death, but the death benefit will be counted for potential estate taxation depending on the overall value of your estate. The money received by an IRA beneficiary is subject to a number of options, like a rollover, based on whether the beneficiary is the spouse or someone else. These choices can affect the taxes to be paid when money is withdrawn from the retirement account.

Friends are OK. The beneficiary doesn’t have to be a relative. You could select a friend or a charity. However, if you name an individual as beneficiary of a retirement plan, it’s important tax-wise that the beneficiary understands NOT to make an immediate withdrawal from a retirement plan. Depending on the age of the person who died, and whether or not the beneficiary is a spouse, there are several decisions about rolling the account into another IRA that should be made to keep the money growing tax-deferred or tax-free in a Roth. Each decision will have distinct tax and withdrawal implications for the beneficiary.

No kiddies! Don’t name a minor as a beneficiary of a life insurance policy or a retirement account because it will usually result in a court-ordered trustee being appointed. He or she would have the authority to make distributions, which might not be what you wanted. If you want your young children to be beneficiaries, talk to an experienced estate planning attorney and create a trust as beneficiary. You can designate the trustee of your choice and include payout instructions.

Surprise! It's totally your decision whether to tell your beneficiary that he or she will receive money at your death. However, if you designate an institution or charity as the beneficiary, you should obtain the proper forms and instructions to do this correctly.

Just imagine the look on your current spouse’s face when he or she learns that you did not update the beneficiary designation and a distant cousin or your ex is going to reap a huge windfall upon your death. That should be enough motivation for you to get this one done.

Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!

  • My practice is exclusively estate planning and probate,
  • I have prepared numerous estate plans in 16 years of practice,
  • I have administered estates and trusts through Probate all over Florida,
  • I am a Certified Financial Planner Professional™, and
  • I am here for YOU today and there for your FAMILY tomorrow.

Reference: Chicago Tribune (January 6, 2017) “Who will get your money when you're gone? Some things to know”

Why would we recommend D.T.F.? Several Reasons: Your ability to explain complex estate problems, clearly and patiently; your total lack of arrogance and pretense; a strong feeling that you are motivated by what you perceive is best for your client, rather than what would generate the largest legal fees; finally, and importantly, you are a lovely guy. A.C.

Two words cannot sum up the entire process of creating my “trust.” I enjoyed your attention to detail, your patience of explaining terms and conditions until I understood, also giving me copies to read and understand. Thank you for your suggestions on what was best for “me” but still allowing me to make my choice. Most of all, thank you for thinking of “me.” Wells Fargo said “you were the best” I cannot deny that. Again thank you very much for everything. Anna is an asset or a compliment to the firm. She is warm and very caring. It was great doing business. Thank you.