In our Nov. 20 post, we promised to review some tips about IRA beneficiary forms. As we said then, this is the time of year when people tend to take care of these things. We quickly review our beneficiary designations when we sign up for employer-sponsored benefits — 401(k)s, life insurance, etc. — or we glance at them as we plan for the coming year in the wake of a year-end salary review.
These details are easy to breeze by, but they are the most important part of those accounts and policies: Our objective is to save as much as we can for our retirement and for our loved ones after we’re gone. If we don’t name the right beneficiary, our hard-earned retirement accounts could empty into the pocket of someone we haven’t spoken to for 10 years.
Take a few minutes away from the Philadelphia winter, and curl up with your account information and beneficiary forms. If you keep the following tips handy, you may avoid the kinds of mistakes that mess things up for the next generation.
Mistake #1: Naming your estate as beneficiary. We know plenty of people who wait until they have all of the necessary information before they put anyone down as beneficiary. Bob is unmarried and childless, so he wants his cousin to be his beneficiary. The form includes a field for the beneficiary’s Social Security number, but Bob doesn’t have it. He leaves the form blank, fully intending to take care of it the minute he gets home. He forgets about it completely. And what the heck? His cousin is named in his will.
By not naming a beneficiary, Bob has unwittingly left the funds to his estate. The mistake could cost his cousin money and time. As part of the estate, the funds would go through probate — and would be available to any creditors. And, Bob’s cousin will have to wait until the probate process is wrapped up before he sees any of the money, and that could take a year.
We’ll continue this in our next post.
Source: Bankrate.com, “5 IRA beneficiary form mistakes to avoid,” Shelly K. Schwartz, accessed Nov. 20, 2014
Our firm helps people with the soup-to-nuts details of estate planning — including reviewing retirement accounts to make sure all the information is correct. If you have questions about your situation, please contact us.