Make Sure Your Beneficiary Designations Are Up to Date
Planning for one’s eventual death can be a somber task. However, consider what would occur if you failed to plan: loved ones trying to figure out your intentions, a long and expensive legal battle with unintended heirs, and instead of grieving your loss, wondering why you didn’t take care of business while you were living.
Planning suddenly becomes far more appealing, doesn’t it? There are ways to prevent some common beneficiary errors.
Name a beneficiary for your retirement accounts. A beneficiary can be a person, a charity, a trust, or your estate. Your estate planning attorney will be able to help you identify likely beneficiaries and ensure they are eligible.
Review your beneficiary designations on a regular basis. Most people have changes in relationships as they move through the stages of life. The same person who was your best friend in your twenties might not even be in your life in your sixties. However, if you don’t check on beneficiary designations on a regular basis, you may be leaving your retirement accounts to people who haven’t heard from you in decades and disinheriting loved ones. Every time you update your estate plan, which should be every three to five years, check your beneficiary designations.
Name your spouse as a primary beneficiary for a retirement account. When Congress passed the 2019 SECURE Act, the bill removed a provision allowing non-spousal beneficiaries to stretch out disbursements from IRAs over their lifetimes, also known as the “Stretch IRA.” A non-spouse beneficiary must empty any inherited IRA within ten years from the death of the account holder. If a minor child is the beneficiary, once they reach the age of legal majority, they are required to follow the rules of a Required Minimum Distribution. Having a spouse named as beneficiary allows them to move the inherited IRA funds into their own IRA and take out assets as they wish.
Reconsider naming an estate as a beneficiary. You can name your estate as a beneficiary. However, it creates a significant tangle for the family who has to set things right. For instance, if you have any debt, your estate could be attacked by creditors. Your estate may also go through probate court, a court-supervised process to validate your will, have your final assets identified, and have debts paid before any remaining assets are distributed to heirs.