When was the last time you checked to see whom you named as the beneficiary on your retirement account?
Many people assume that their will, or a trust, is enough to make sure your money goes where you want it to go when you pass away.
However, when it comes to retirement accounts, annuities, or even life insurance policies, the person listed on your Beneficiary Designation Form will inherit that asset, even if that is no longer your intention.
Consider the Supreme Court case Hillman v. Maretta [Hilmann v. Maretta, 569 U.S. 483 (2013)]. Mr. Hillman had divorced his wife and remarried. However, he never changed his Beneficiary Designation on his life insurance policy, even after he eventually remarried. When he passed away, that policy was awarded to his ex-wife. While it was most likely not his intention, the Supreme Court ruled unanimously in favor of Ms. Maretta (his ex-wife), and she received all benefits from the policy. Mr. Hillman’s widow received nothing.
Many people forget to update their beneficiary designations after major life changes such as marriage, divorce, birth, adoption, or even death of a named beneficiary. It’s very common to fill out all the paperwork when you are opening the account, and then never really think about it again. Having an up-to-date beneficiary designation can make sure your assets go where you intended.
An additional benefit, once you assure the asset goes to your intended beneficiary, are tax advantages. If your account goes to your estate or even a trust in certain circumstances, those assets may be completely taxable five years after death. By naming your loved ones as the beneficiary, the funds can be withdrawn over a longer period of time. This allows your accounts, such as an IRA, to continue to grow tax-deferred or tax-free.
You also gain the ability to avoid probate. Probate is the legal process for proving your will and distributing your assets. It is frequently a time-consuming and expensive process which can include executor fees, attorney fees, court costs, appraiser’s fees, and sometimes other expenses that simply chip away at the estate you have left behind. If you have your retirement account Beneficiaries up to date, the amount of property that will be subject to probate is less, and those accounts can be distributed or reregistered quickly.
Obtaining a form to update your beneficiary designation is easy; distributing your assets after your death without designating a beneficiary isn’t. Take a moment to review your beneficiary designation. This can be accomplished with a simple phone call. If you need to make a change, we can help you.
Mountain West IRA does not offer clients investment, tax, financial, or legal advice. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.
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