You may already have an estate plan in place, but some accounts do not adhere to wills and trusts. Beneficiary designations will most likely control how your assets are distributed in certain accounts.

Review the following considerations to ensure your wishes are aligned across ALL of your accounts.

  1. Retirement plan accounts, employee benefit plans, insurance, annuities, and transfer on death (TOD)/payable on death (POD) registrations all have beneficiary designations that supersede instructions provided in your will.
  2. Beneficiary options differ with regard to retirement accounts depending on whether the owner died prior to taking RMD’s or after inception of RMD’s.
  3. A Roth IRA is treated differently than other IRA types. Generally, the distribution options for beneficiaries are not as important because the Roth-IRA distributions are free from tax. A trust would only be used in this case to limit the amount of annual distributions available to the beneficiary.
  4. In community property states, both the owner of an account and the spouse must sign off on any employer pension changes and elections.
  5. Spousal beneficiaries are eligible for the most favorable treatment as they can roll assets into their own names or leave assets in the name of decedent and take distributions according to their original schedule.
  6. Designated beneficiaries are divided into two groups – living and non-living. Living beneficiaries have more favorable options for deferring receipt, enabling them to “stretch” post mortem distributions.
  7. Trusts as Beneficiaries: Trust beneficiaries are grouped together, with the oldest beneficiary life expectancy used to calculate the distributions for ALL beneficiaries of the trust. Since charities are non-living beneficiaries, including a charity in the trust will effectively eliminate the stretch opportunity for all beneficiaries. Both types of beneficiaries are still eligible for the 5-year rule with regard to distributions.
  8. Trusts as Beneficiaries: For a trust to qualify as a designated beneficiary, the trust must either be irrevocable at issue or irrevocable at death. If any powers to change the trust extend beyond the owner’s lifetime, the trust must be considered a non-designated beneficiary.
  9. Trusts as Beneficiaries: Tax rates for trusts are significantly higher than those incurred by individuals.
  10. Restricted Beneficiaries: In most cases, beneficiary designations can be changed over time. However, in some cases like a divorce settlement, beneficiaries can be named as restricted beneficiaries – eliminating the right of the owner to change the beneficiary.

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