Be thoughtful when designating, reviewing beneficiaries

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You've earned money, saved and invested, bought insurance and funded retirement accounts.

You want to make sure that when you pass on, the results of your efforts go to the people you care about.

That is why carefully designating the beneficiaries of your various policies, accounts and plans is very important.

We often complete these designations without giving them much thought and most people seldom go back and review them, even though there might be a major change in one's relationship to a designated beneficiary.

Common areas where you have the opportunity to designate beneficiaries are:

  • Individual retirement accounts (IRAs)
  • Employer-sponsored retirement plans (401(k)s, 403(b)s, etc.)
  • Life insurance policies
  • Annuities
  • Transfer-on-death (TOD) accounts
  • Pay-on-death (POD) bank accounts
  • Stock options and restricted stock
  • Executive deferred compensation plans

When you set up your estate plan, it is important that you review all the designations you previously made and align them with your plan.

During your annual review with your financial advisor remember the following guidelines:

  1. Name beneficiaries. If you don't, the policy or account might have to go through probate court, resulting in additional costs, unnecessary delays and potential unfavorable tax treatment.
  2. Name primary and contingent beneficiaries. This is especially important if you are only naming one primary beneficiary.
  3. Update for life events. Major events such as births, deaths, marriages and divorces might change your desired beneficiaries.
  4. Coordinate with your will and trust. When you meet with your attorney to review and update these documents, be sure to talk about your beneficiary designations.

Because your designations are independent from your other estate planning documents, you want to be able to understand "the big picture" of where your assets will be going.

  1. Understand that naming your estate as beneficiary will result in the account going into probate.

In general, this is something you might want to avoid, but your attorney will help you decide whether it's important to make sure assets pass according to your will.

  1. If your beneficiaries are minors, have special needs, or are not particularly good with money, discuss with your attorney the idea of creating trusts for those individuals, and make sure that your beneficiary designations are set up to fund those trusts.
  2. Tax consequences. Some transfers by beneficiary designation come with special tax implications, so consult an experienced tax advisor.

Luke Gawronski is a financial planner and investment advisor representative with Barnum Financial Group in Bluffton. lgawronski@barnumfg.com

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