Many people have not looked at the beneficiary designations on their Life Insurance, Retirement or Annuity Accounts for years. With most of these accounts, you were most likely prompted to designate a beneficiary when you first opened the account. People do not realize that any beneficiary designation made on these accounts will override their will, trust, or other estate planning documents executed. Too often, an ex-spouse is inadvertently left as a beneficiary or a later born child is omitted. Taking the extra step to add contingent beneficiaries to retirement accounts can even result in dramatic tax savings for your loved ones. A few minutes of work on your end can eliminate grief and consternation for your heirs after you pass.
So please, review all those designations to ensure they reflect your current wishes.
-Kathryn Bedell, Esq.
Do you own an IRA/401K/Annuity or other retirement “pre-tax” account? When was the last time you checked the beneficiary designations on those accounts? You could be wasting your retirement money on unnecessary taxes.
We often forget that giving retirement accounts to our heirs comes with a tax. Most of these accounts are “pre-tax,” meaning that you have taken a pass on paying income tax until later. That promise to pay carries over to your beneficiaries. Most companies will prompt you for a beneficiary when you set up the account, but that could have been years ago. Things change, a beneficiary may have died, you may have divorced, etc. You always want to make sure you have “primary” AND “contingent” beneficiaries on these accounts. The tax savings you will pass to your heirs is significant. If your primary beneficiary predeceases you, in a common accident, for example, and you don’t have a contingent beneficiary named, that account will default to your “Estate” when you die. Estates are taxed (Federal and State) at the very highest income bracket there is. Moreover, individuals can usually spread out the tax liability over the rest of their lives. Estates have to take the money in a set time frame, meaning potentially one-half of the money will needlessly go to pay completely avoidable income tax.
So, update those beneficiary designations and make sure you have a contingent beneficiary named on all these types of accounts.
– Kathryn Bedell, Esq.