Posted by: Heinz Brisske

On the heels of my post on April 18 (Keep Your Beneficiary Designations Up-to-Date), Yahoo Finance recently reported that an IRA valued at some $400,000 that was intended for the decedent’s children went instead to his wife of two months. The Yahoo Finance article points out the importance of correctly designating beneficiaries of IRAs and other retirement accounts. Beneficiary designations are legal documents and are not to be taken lightly.

Beneficiary forms should always be completed with the advice of an estate planning attorney who understands the laws and the income and estate tax consequences involved. And they should be reviewed regularly, preferably annually. Life’s changes can have a huge impact on a beneficiary designation, as can changes in IRS rules and regulations, court decisions and state and federal laws.

A beneficiary designation, whether for a life insurance policy, an annuity, or a retirement account, such as an IRA, 401(k) plan, 403(b) plan or profit sharing plan, is a mini estate plan that needs to be coordinated with your other estate planning documents. Furthermore, the income tax consequences of how you designate beneficiaries can have a dramatic effect on what your beneficiaries actually end up with (it’s not how much they get, but how much they keep, that’s important).

So, review your existing beneficiary designations with an estate planning professional, and get help when completing new beneficiary designations. It may sound trite, but “better safe than sorry” is aptly applied to this area of your life.