Here’s a simple financial question:who is the beneficiary of your IRA? How about your 401(k),life insurance policy,or annuity?
You may be able to answer such a question quickly and easily. Or you may be saying,“You know …I’m not totally sure.” Whatever your answer,it is smart to periodically review your beneficiary designations.
Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Eighties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit –perhaps more than a bit?
While your beneficiary choices may seem obvious and rock-solid when you initially make them,time has a way of altering things. In a stretch of five or ten years,some major changes can occur in your life –and they may warrant changes in your beneficiary decisions.
In fact,you might want to review them annually. Here’s why:companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board,a beneficiary designation can get lost in the paper shuffle. (It has happened.)
How your choices affect your loved ones. Many people do not realize that beneficiary designations take priority over bequests made in a will or living trust.
What if you change your mind about the way you want your assets distributed,and are unable to communicate your intentions in time?
How your choices affect your estate. Virtually any inheritance carries a tax consequence. (Of course,through careful estate planning,you can try to defer or even eliminate that consequence.)
If you are simply naming your spouse as your beneficiary,the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax,as long as you are a U.S. citizen. When the beneficiary isn’t your spouse,things get a little more complicated …for your estate,and for your beneficiary’s estate. If you name,for example,your son or your sister as the beneficiary of your retirement plan assets,the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) If you designate a charity or other 501(c)(3) non-profit organization as a beneficiary,the assets involved can pass to the charity without being taxed,and your estate can qualify for a charitable deduction.
Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. Be sure to talk about it with the financial advisor or estate planner you know and trust.
Scott S. Lovell is the founder of Lovell Hathaway,Your Retirement SpecialistSM ,and is a registered representative offering securities and advisory services through Geneos Wealth Management,Inc. Member FINRA and SIPC. For additional information,Scott can be reached at (435) 656-2518.
These are the views of Peter Montoya,Inc.,not the named Representative nor Broker/Dealer,and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice.
