Imagine you’ve lined up your will, your trust, all the necessary estate planning documents, thinking you’ve covered your bases. But here’s one you may have forgotten: naming beneficiaries for your IRA. A friend recently found out the hard way that this easily overlooked detail causes huge headaches. You see, her mother wasn’t sure who to name when the account was opened and decided to think about it. Time went on and her mother passed away before this detail was corrected, sending the IRA to probate. The two intended beneficiaries will eventually get the money, but they will be forced to take the distributions much faster than they want (and absorb the tax implications), rather than stretching the payments over a longer period of time.
Here are some potential problems when a beneficiary is not named on an IRA:
- There is no backtracking by trustees or personal representatives to “fix” the omission
- The account will be distributed according to your will; through the probate process which can be lengthy depending on the complexity of the estate
- The account becomes subject to the creditors of your estate
- The opportunity for tax deferral by spreading out distributions over a longer period of time may be lost.
It seems easy enough to name a beneficiary, but the reality is that this important designation is often overlooked. To prevent unforeseen mishaps, have your IRA beneficiary form reviewed by your financial planner annually to make sure it reflects your wishes and fits with your overall financial planning objectives.
Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.
Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal issues with the appropriate professional.