“Tell me and I forget, teach me and I remember, involve me and I learn.” Benjamin Franklin
The past several columns focused on personal and retirement savings. There were suggestions for applying specific investment strategies to both pools of monies based upon risk tolerance and time horizon. Each column suggested an action item and provided additional resource opportunities at the websites offered by plan sponsors, Morningstar, and brokerage firms such as Charles Schwab, Vanguard, Fidelity and T. Rowe Price.
Accumulating savings requires sound planning, discipline and patience. Because of these efforts, it is important to ensure that these monies are protected should something happen to you. While many think that their wills designate the flow of all monies to selected individuals or charities, there is a broad range of savings that require more specific paperwork.
Life insurance policies, annuities, corporate retirement plans and IRAs require that you — as the account owner — name both a primary and a contingent beneficiary. Beneficiaries designated to receive the proceeds of these savings can include spouses, children, family or friends, charities or trusts. These designations override any bequests that you may have made in your will.
The named beneficiary will receive assets directly and the assets will not flow through probate, thus avoiding time delays and added costs. However, life events such as marriage, divorce, birth, death or a broken relationship might impact your wishes and thus motivate you to contact each provider to amend the beneficiaries of your account.
An example of what might go wrong could be if a sibling had been named as a beneficiary of your corporate retirement plan. This decision may have been determined when you first joined a company. However, since then you may have married and had children. If you were to die, your sister or brother would receive these monies, not a member of your new family.
In addition, changes in tax law might change your intentions. For example, effective Jan. 1, 2020, new legislation eliminated the “stretch provision” for many types of retirement accounts should the named beneficiary not be your spouse. Under the old rules, a non-spousal beneficiary was allowed to take a required minimum distribution (RMD) over his or her lifetime, which allowed funds to grow tax-free, possibly for decades.
For those who are charitably minded, the most tax-effective form of giving can be to name a charity as a beneficiary of an IRA, corporate retirement plan or life insurance or annuity policy. When a charity is named as a beneficiary, the benefits multiply. Key reasons to consider a charity as a beneficiary include:
- You can support a cause you care about as part of your legacy — especially impactful if you have donated to the charity on a consistent basis.
- Multiple family members and charities can be included by using select percentages that will go to each. This can be a preferred method versus designating a set dollar amount.
- While your estate will include the value of these assets as part of the gross estate tax, there will be a tax deduction for the charitable contribution to offset the estate taxes.
ACTION ITEM: Review each of your beneficiaries by contacting the provider of all life insurance, annuity and retirement accounts. If the names on file meet your goals, document these in writing for your family. If the investigation does not reflect your current wishes, submit the appropriate paperwork to update the beneficiary.
Most beneficiary designation forms allow you to name multiple primary and contingent beneficiaries and to specify what percentage of assets you would like distributed to each person or entity upon your death. Be as specific as possible when designating beneficiaries and make this task part of your annual review of your finances.
NEXT MONTH: other estate planning considerations.
Beth Stegner Peabody is CEO of Stegner Investment Associates, Inc., and a graduate of Sacred Heart Academy.
