All of us focus on accumulating money in our retirement savings as a way to help enjoy a long and financially comfortable life.
Much less thought is put into what becomes of those assets after you die. Every retirement account under your name should include a plan and a beneficiary for your assets. The problem is that often we don’t pay much attention to it. When you open an individual retirement account or sign up to participate in a retirement savings plan through your employer, you should have completed a designated beneficiary form. The most common beneficiaries are spouses, children or other family members. Assuming that no significant changes have occurred in your life since you established your designated beneficiaries, you might not have much to worry about. But there is a good chance that if several years have passed since the account was opened or the forms were last completed, you don’t even remember the names you listed on the designated beneficiary form. Given that a lot of things change in life, this could result in a big surprise. For instance, if you and your spouse have since divorced, you might unintentionally leave all of your retirement savings to your ex-spouse if you die unexpectedly. Or, if children have been born since that time, their names will not appear on the form you completed years ago. Designated beneficiary and your will Many people assume their will provides all of the necessary information about the disposition of assets at death, including those from retirement plans. But in fact, the designated beneficiary forms filed with your accounts will take precedence over your will. The reason is that a retirement account generally is not considered a part of an estate. In some situations, you might be allowed to designate beneficiaries “as per my will.” In this case, for example, if you named one of your children in your will as the beneficiary of your IRA, the assets will eventually go to that child. However, he or she will not technically be considered an IRA beneficiary, and that limits some options as to how they can take distributions from the account in order to minimize the tax impact. A bigger risk, if you fail to document beneficiary designations, is that your actual beneficiaries of your retirement assets might be determined by federal or state law. For qualified plans such as workplace savings plans, federal regulations automatically designate the spouse of the account owner to become the beneficiary. If the account owner is not married, then their estate becomes the default beneficiary. In situations involving IRAs where no beneficiary has been designated, state law comes into play. Therefore, you will need to be familiar with laws to know what might occur in the event of your death. Strategies for beneficiaries Naming a designated beneficiary can be simple, but depending on your life situation, some forethought might be required. This is clearly the case in more complex family situations where second marriages or children from separate spouses come into play. Other factors might be worth considering, as well. For example, you should have provisions in place in the event you and your spouse die simultaneously. Successor beneficiaries should be planned for and named. This is an important aspect of updating your beneficiary designations. Even if your primary beneficiary remains the same, you might wish to reconsider contingent beneficiaries. You can design your beneficiary designations to carry beyond the primary beneficiaries in the event one of them dies before you. For instance, if you named a son as a primary beneficiary, you also could designate that his shares be directed to his heirs (such as his children) if he dies before you. Another option that gives you more control of your assets after your death is to designate a trust as the beneficiary. This could be used, for example, to provide ongoing financial support to a surviving spouse while also directing a portion of the assets to others, such as other people or a charity. Take steps that are right for you If you are at all uncertain about your current beneficiary designations, be sure to revisit them by contacting the administrator of your retirement plans to obtain a list of your current designees. If you feel that some of your naming decisions could be complex, you should consider discussing your options with a financial adviser or an attorney before completing the paperwork. Contact Shawn Bumgardner, a senior financial adviser at Ameriprise Financial Services Inc. in Southgate, at 1-734-284-3700 or . 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Paula Pasche has covered University of Michigan football and basketball for the past three seasons. She also pitches in on Pistons coverage.