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Check Your Beneficiaries

By Rick Imhoff, CFP ®

The most important goal of your estate plan is to make certain your remaining assets are distributed according to your wishes.  For that to happen, you need to make certain you have named your beneficiaries appropriately in your estate plan.  If it has been a couple of years or even several years since you implemented your estate plan, now would be a good time to check to make certain those beneficiaries named are still appropriate.

When you have the opportunity, it is a good idea to name both a primary and contingent beneficiary.  If the primary beneficiary predeceases you, then the contingent beneficiary can claim the asset or benefits.  If you don’t name a contingent beneficiary and the primary beneficiary predeceases you, the asset or benefit is paid to your estate and would be subject to the costs and delays of probate.

Be careful when naming a minor as a primary or contingent beneficiary.  As a minor, they will not be able to receive the asset or benefit without a guardianship being established by the probate court and managed until he or she reaches the age of majority.  As an alternative, you could name a trust as beneficiary of a minor’s share of your estate to pay out benefits as you see fit.  The funds could also be held in trust well beyond when they reach the age of majority.

You should check the beneficiary designations on your retirement plan, Traditional IRA and/or Roth IRA.  Typically, you will need to name your spouse, if applicable, as the primary beneficiary unless he or she consents not to be named.  Other than a Roth IRA, the benefits paid out at your death from these types of accounts will be fully taxable to the beneficiary.  With that in mind, if you are charitably inclined, you may wish to designate a charitable organization as beneficiary of these assets as they would not have to pay income taxes on the benefits received.

The death benefit from a life insurance policy is typically paid to the beneficiaries free of income tax.  These benefits can be paid directly to the beneficiary to do with as they wish.  However, if the beneficiary is not financially inclined or unable to properly handle a large sum of cash at one time, you may consider naming a trust as beneficiary and paid out according to your direction based on the needs of the beneficiary.

Be sure to check your bank and brokerage accounts too.  Accounts you own as joint tenants with right of survivorship (JTWROS) will pass immediately to the surviving joint owner at your death.  Bank accounts with a Paid on Death (POD) designation or a brokerage account with a Transfer on Death (TOD) designation can be useful when you still want to retain full ownership of the assets during your lifetime.  It is important to be certain these beneficiary designations match the overall distribution plan of your estate.  Often times, these designations, particularly the JTWROS titling, are used without consideration of a change in ownership during your lifetime.