Keeping Beneficiary Names Fresh

Updating beneficiary information is an important and often overlooked part of Estate Planning and what better time than now to review? Conflicting beneficiary designations can undermine an estate plan, locking it in a Probate Court battle. Case in point: directing proceeds from an Employee Retirement Plan in a Will to one person when that same Plan has a beneficiary designation listed to a different person. Courts will not override a beneficiary designation on retirement plans or life insurance or annuity policies. Consider these planning tips: primary beneficiaries are first in line to inherit an asset (if alive); but they can also disclaim an asset to a named contingent beneficiary; so name contingent beneficiaries. Retirement accounts owned by married individuals can only name a spouse as beneficiary unless there is signed written consent by the spouse filed with the Plan Administrator; good to know for second marriages. Avoid naming minor children as direct beneficiaries and instead set up a Trust to manage and distribute the money as you would like. Avoid inadvertently disinheriting children by failing to update beneficiaries following a death, divorce or re-marriage or listing an asset jointly with one child when there are other children. Never leave retirement plans to “the estate”  since as much as 70% can be consumed by unnecessary income taxes. Here is a doozy: elderly parents may want to add grown children’s names to a deed of property purchased long ago sitting on a good bit of gain. When the parent passes and the child sells the property, the child lost the benefit of the step-up in basis and may have had to pay capital gain taxes on the full amount of appreciation. The IRS looks at this transaction as a gift, rather than a transfer because the child did not put any money towards the purchase of the property. Had the parent left the property in their name and passed it on in their Will, the gain up to the date of death would have been wiped out. (IRS.gov)

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