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How to Make Sure Your IRA Goes to the Right Beneficiaries

Posted by Chris Peterson | Sep 30, 2014 | 0 Comments

How to Make Sure Your IRA Goes to the Right Beneficiaries

IRA beneficiariesAside from your home, your individual retirement account (IRA) may be the biggest single asset you own. Contrary to popular belief, however, your IRA isn't likely to pass to your heirs according to the terms of your will. Instead, most IRAs are structured as payable-on-death (POD) accounts, much like your checking, savings or money market accounts. POD accounts are a convenient method of avoiding probate for those assets, but the beneficiaries you selected when you set up the IRA may not be the same ones you would choose today.

How can I find out who the beneficiaries are?

Like your last will and testament, trust documents and other estate planning documents, you should review the beneficiary designation forms for your POD accounts periodically to make sure they reflect your current wishes. If you can't remember which beneficiaries you named when you set up your POD accounts, you may have to look no further than your own file. You may have kept a copy of the beneficiary designation form when you opened the account. If the information is not in your file, request a copy of your beneficiary designation form from your IRA manager.

How to change beneficiaries

Your designation of beneficiary form should name at least one living beneficiary and at least one alternative beneficiary. If either of your named beneficiaries needs to be changed for your IRA or any of your POD accounts, put the task at the top of your to-do list and return the completed forms to the custodian of your accounts as quickly as possible. The reason is simple – a completed form is not effective until it has been delivered to the bank or IRA fund manager.

Naming your estate as the beneficiary is rarely the best option

It may seem like an easy fix to simply name your estate as the beneficiary of your IRA, because that would send the funds through your estate to the beneficiaries named in your will. Naming your estate is possible, but it will include the value of the account in the size of your estate, potentially resulting in greater probate expenses and estate taxes.

Naming your estate as the beneficiary also puts the funds within reach of your creditors upon your death, meaning your intended beneficiaries could be left with nothing. On the other hand, if the funds are subject to a valid POD beneficiary designation, the funds never become part of your estate and are kept out of reach of your creditors.

Seek legal advice if you have any doubts about naming beneficiaries

An experienced estate planning attorney can help you work through these issues and help you structure your beneficiary designations to minimize both probate expenses and tax obligations. At Peterson Law Group, we look forward to helping secure your future and that of your beneficiaries. Schedule a consultation today by calling 979-703-7014 or visit us online to request a meeting.

About the Author

Chris Peterson

Chris Peterson is the owner of Peterson Law Group. He practices primarily in the areas of wills, trusts and estate planning; probate and trust administration; elder law; and business law. Chris is also the owner of Brazos 1031 Exchange Company.


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