Kaplin Stewart

Naming beneficiaries isn’t as easy as it sounds

Now that the holidays are behind us, we can circle back to our discussion about naming beneficiaries for your 401(k) retirement accounts and life insurance policies. The title of this post is not exactly right: It is easy to name a beneficiary. It is also easy, however, to leave critical information out. And, as we said in our Dec. 16 post, a mistake here can mean the money you wanted your children to have will go instead to your ex-husband.

Naming your children as beneficiaries is a little more complicated if they are minors or if you think they may not be good with money. Did they save their allowance or spend it right away? Do they share your values when it comes to, for example, college or homeownership? For a number of reasons, estate planning professionals recommend thinking twice before filling in your children’s names and filing the beneficiary form away.

Mistake #2: Not establishing financial controls. Remember, your beneficiary will get a pile of money with no restrictions on how it should be spent or when it should be distributed. Philadelphia must have its fair share of 18-year-olds who would blow a windfall on a sports car when you had hoped she would use it for college or the down payment on a house. Without putting any controls in place, that kid — a legal adult — could go through the money in a day, rather than thinking of it as an emergency fund or the seed funds for his own retirement planning.

One of the most flexible tools to establish this kind of control is a trust. We’ll explain more in our next post.

Source: Bankrate.com, “5 IRA beneficiary form mistakes to avoid,” Shelly K. Schwartz, accessed Nov. 20, 2014