Tuesday, May 26, 2009

Have You Completed a Beneficiary Audit?

Most people think that their IRA assets will be distributed by their wills upon death. It is the designation of beneficiary form on file with the IRA custodian that will govern who receives those assets. It is important that each IRA account has a designation of designation form filled out with both a primary and contingent beneficiary. The only time a will will (say that five times fast) determine where the IRA assets go is if there is no beneficiary form, or perhaps it is lost, and the custodian agreements defaults to the estate. An estate is the worst beneficiary because generally the IRA can't be stretched out over the life expectancy of an individual.

There are several important points to keep in mind with a designation of beneficiary form:

1. Has it been filled out properly with a primary and contingent beneficiary?

2. Check with the IRA custodian to ensure they have an updated copy on file.

3. Is it updated to reflect any family changes such as divorce, death of a beneficiary or any new children or grandchildren?

4. Retain a copy for your records so your beneficiaries can locate it.

In a recent case, the U.S. Supreme Court ruled unanimously that a designated of beneficiary form trumps all other estate planning documents. In that case a plan participant got divorced and under the divorce decree, the ex-wife waived her rights to any benefits under his retirement plan. It was intended that his daughter would receive the proceeds from the plan at his death. The beneficiary form on file with the plan sponsor was never changed to the daughter. Therefore the daughter got nothing and the ex-wife received all the money.

It is interesting that most people can locate their wills and not their designation of beneficiary form, but the will does not cover the IRAs or qualified retirement plans.

--By Jared Trexler


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