Annual Planning/Life Changes

Who Is Your Beneficiary?

Good planning takes into account both the expected and the unexpected. By building your nest egg, you’re planning for the comfortable retirement you always hoped for. All it takes to plan for the unfortunate event that something unexpected happens on the way to retirement is to name beneficiaries for all your investments. While it may seem easy to overlook now, the effort may be greatly appreciated by your heirs.

By naming a beneficiary, you’re ensuring that your money goes where you want it to go when you die. Employer-sponsored plans are unique in that they generally require that a spouse is the primary beneficiary, unless you elect otherwise and your spouse consents in writing. But other investments, such as individual retirement accounts (IRAs), may not provide this automatic feature.

You may choose to name more than one beneficiary for a particular account. However, you will need to specify the percentage each beneficiary is to receive. If you don’t, your assets will be divided equally among your designees. Perhaps your spouse has already passed on, or maybe your spouse’s net worth exceeds the current federal estate tax exclusion. While the estate tax exclusion was repealed for 2010 (meaning there are no limits for this tax year), it is slated to resume in 2011 at a threshold of $1,000,000. If your spouse’s net worth exceeds that limit, it may be wise to select another individual — say a child, another relative, or a friend — to receive your assets upon your death.

Keep in mind, your gift may come at a price. Those who inherit your account will be assessed income tax on the amount you leave them. Of course, Uncle Sam would not hit a beneficiary in a lower federal income tax bracket as hard.

Once you name a beneficiary, you may want to review your selection from time to time, perhaps at major life changes like marriage, divorce, or the birth of a child. As your situation changes, you may find that a new beneficiary is appropriate. 

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