The Benefits of Beneficiary Planning

If you haven’t checked your designated beneficiaries lately on your life insurance or retirement plans in a while, you will want to do so. A lack of planning can lead to unintended consequences, like this one that made it to the U.S. Supreme Court.

A beneficiary is an individual, trust or charitable organization that you select to receive a part of your estate after you pass on.

Here are some guidelines to help with proper beneficiary planning:

  • Be thorough – Think about all the places where you have money or a financial interest – have you missed anything? Checking accounts, savings accounts, brokerage accounts, IRAs, employer-sponsored retirement plans like 401(k)s and 403(b)s, pension plans, non-qualified compensation plans, life insurance, annuities – all of these require some kind of beneficiary designation.
  • Be accurate – This may seem obvious, but small mistakes can lead to major ones down the road. Names should be correctly spelled, and each name should have a Social Security number provided to avoid confusion.
  • Be mindful of worst-case possibilities – Beneficiaries come in two flavors: primary and contingent. The primary beneficiary (or beneficiaries) will inherit should something happen to you. But just as important is the contingent beneficiary, who will inherit only if the primary beneficiary is deceased, such as might occur in the event of a simultaneous death of husband and wife. It is always wise to name a contingent beneficiary in addition to a primary.
  • Be expansive – When it comes to beneficiaries, look beyond family and friends. Your favorite charities can be named primary or contingent beneficiaries of an asset, either in total or by percentage. Retirement accounts often make smart vehicles for including charity as a beneficiary because of the tax benefits.
  • Be smart – Talk with your advisor about your specific situation. If you have minor children, are worried about heirs overspending, or are concerned about creditors, different beneficiary strategies may be employed to handle these scenarios. Retirement accounts like IRAs have specific rules about inheritance, and may require special handling to avoid unwanted tax consequences down the road.

A thorough review of your beneficiary designations is critical to ensuring that your ultimate wishes are followed.

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