Chances are you would like those near and dear to you to inherit any money you’ve accumulated during your lifetime, so making sure that happens should be as simple as writing their names on the appropriate forms, right?
Well, if only it were that simple. Naming beneficiaries can be more complicated than you might think, and it’s a decision that may have significant repercussions for your loved ones.
Know The Basics
You can name almost anyone, or anything, as your beneficiary, including individuals, charities and trusts. However, it is important to note that children under the age of majority — 18 or 21, depending on the state in which you live — cannot be named as beneficiaries of life insurance policies, retirement plans or annuities. If a beneficiary is not designated, assets will have to go through probate, which can be a lengthy and costly process. Also, be aware that beneficiary designations will override bequests you’ve made in your will, so please do not rely on your will to sort out these issues. This leads to our second point.
Keep Your Designations Up To Date
It would be advisable to review your beneficiary designations on a regular schedule, ideally as part of an annual review of your finances. Major life events, such as a marriage, a divorce, the birth of a child, or the death of a loved one may require that you make changes to your designations. Don’t procrastinate on this, as it may end up affecting others’ lives. Moreover, you’ll also want to review your designations if you or your employer have recently switched retirement plan or insurance providers. You should not assume that the beneficiaries you specified with your previous provider will automatically carry over to the new one.
Bear In Mind The Tax Consequences
If you decide to designate someone other than your spouse as the beneficiary of your employer-sponsored retirement plan assets, he or she may have to take mandatory distributions from that plan and, in turn, pay taxes on the money. Your spouse, on the other hand, will be able to roll over your retirement plan assets into his or her own individual retirement account (IRA) and won’t have to pay taxes until distributions begin. There can also be estate taxes to keep in mind if you name a beneficiary other than your spouse. It is always wise to discuss potential tax ramification with your advisor.
It pays to be as specific as possible when designating beneficiaries. Most beneficiary designation forms allow you to name multiple primary and contingent beneficiaries and to specify what percentage of assets you’d like distributed to each upon your death. For example, you can state: “I hereby designate my wife, Jane Smith, as primary beneficiary,” or “I hereby designate my two children, John Smith and Allison Smith, as contingent beneficiaries, with the proceeds to be divided equally among them.” Of course, it is recommended that you discuss these important matters with your family members beforehand, so that they are prepared and know what to expect.
This document is for informational use only. Nothing in this publication is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.
Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training.MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.