Get to Know Your Beneficiaries

If you are among the majority of Americans who don’t have a will, it might interest you to know that you can arrange to convey some of your most valuable assets to your heirs without a will or a probate court.

Of course, you still have to fill out the right forms, but the process is nowhere near as complicated as writing a will. In fact, your retirement assets, life insurance, and some other account types should convey to whomever you named as a beneficiary, regardless of what it says in your will or whether you even have a will.

However, be advised that failing to designate your beneficiaries correctly can create problems for your heirs that will make probate seem like a Caribbean cruise.

Don’t Default to Default Beneficiaries

Generally, when you set up a retirement account or purchase a life insurance policy, you are given an opportunity to name primary and secondary beneficiaries. Although it would be unlikely for someone to buy life insurance without designating a beneficiary, it’s not uncommon for people to leave their retirement account beneficiary forms blank.

Most people assume that their IRAs and employer-sponsored retirement plans will go to their spouses. It’s true that these types of accounts have provisions for default beneficiaries, but who exactly qualifies as a default beneficiary can vary based on the account type and custodian — and there’s no guarantee that it will be your spouse.

It can be dangerous to assume that the default beneficiary is the person whom you want to inherit your assets. If it isn’t, the person who was expecting to inherit your retirement assets may have to mount a legal challenge to attempt to change the outcome. If the default beneficiary turns out to be your estate, your intended heirs could lose valuable tax benefits.

Although it’s still important to have a current will in place, a will won’t settle all estate conservation matters. It’s a good idea to review your beneficiary designations on a regular basis to help ensure there is no debate over who will inherit your retirement assets and receive your life insurance benefits.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.