Naming Beneficiaries? Check these Five Important Points

Jul 16, 2013: Most of us have a will in place. Well that is not the be all and end all of estate planning. Now a days most financial accounts come with the options of naming beneficiaries. If you plan to name beneficiaries or want to update out of date beneficiaries on your financial accounts then be aware of the following:

• Know the Limits of your Will's Jurisdiction - Financial accounts like IRAs, 401(k)s, insurance policies and annuities aren't governed by your will. If you leave your beneficiary forms blank, then the assets in your accounts will go to probate court for distribution.

• Name a Runner Up Beneficiary - If your primary beneficiary dies before you, the account goes to probate. Naming a runner up beneficiary gives the primary the option to execute a qualified disclaimer, which passes the inheritance to the contingent without gift taxes.

• Check the inheritance rules of retirement accounts - For tax deferred retirement accounts like IRAs and 401(k)s, it's advantageous to name your spouse over your child as a beneficiary. Why? If your kid is the inheritor, he/she must start taking distributions and pay tax on them beginning the year after your death. On the other hand, your spouse can roll over retirement accounts into his or her name, thus deferring taxes until age 70½.

• Naming a minor as beneficiary? Think again - If you have named your kid as a beneficiary and he/she is under 18, then as per law in most states, the court must supervise the distribution of money. This is a slow and expensive process. You can get around the probate and have more control by setting up a trust in your child's name and naming the trust as the beneficiary.

• Changing beneficiaries is easy - Now a days most financial firms have online forms for changing beneficiaries. So all you will need is your beneficiary's date of birth, social security, a computer, and an internet connection to initiate a change. So go ahead and do it while there is time to save your loved ones from the pain of chasing their own money.

Reference(s):

1. Mangla - "5 Things to know about Naming Beneficiaries" - CNN Money Magazine

Image Source(s): iStockPhoto

Related Posts