Are you storing the documents that designate the beneficiaries of your retirement plans, IRAs, and insurance policies in a safe deposit box? If so, it’s time to dust off these important papers and review them.
Why? You probably made decisions about who will receive retirement assets or life insurance proceeds upon your death when you set up the account or acquired the insurance product. That may have been quite a while ago – before changes such as births, deaths, marriage, divorce, or a shift in wealth or business interests. For instance, you may now have a newborn grandchild you’d like to designate as your IRA beneficiary. Or perhaps a child divorced and you no longer want a former son- or daughter-in-law to inherit.
Remember that beneficiary designations generally override your will. If you make changes to your will but fail to update the beneficiary designations on retirement accounts or insurance policies, your intentions won’t be realized.
As you make changes, consider the potential tax consequences of your designations. For example, life insurance proceeds are included in your taxable estate if you own the policy. While the federal estate exemption of $5.43 million (in 2015) is available to offset estate tax, you may still want to investigate the benefits of transferring ownership of the policy to a trust.
Also remember that most payouts to heirs from qualified retirement plans and traditional IRAs are taxable. There’s no tax on qualified distributions from a Roth IRA.
Contact us and your attorney as you review your beneficiary designations. We’ll help you make sure your planning reflects your wishes.