Naming Your Beneficiary- Avoid these costly mistakes!

When it comes time to name the beneficiary for your life insurance and retirement accounts, there are a few factors that should definitely be considered.  If these forms are not filled out correctly, your wishes may not be carried out, or your heirs may be left with a significant and avoidable tax consequence. Here are a few tips on how to choose your beneficiary.

1.) Retirement Accounts- If you are married and have taken the steps to put a Living Trust in place, DO NOT name your trust as the primary beneficiary on your retirement accounts.  This is a costly mistake that is made time and time again.  If your trust is the primary beneficiary, rather than your spouse, 100% of your retirement account will need to be liquidated to fund the trust. This means you will be forced to pay income taxes on 100% of the retirement account all in one year rather than taking distributions as you need them.

2.) Directly Appoint Your Beneficiary- Many don't realize that both your Life Insurance and Retirement Accounts require you to appoint your beneficiary directly. While you may have a will or a trust in place leaving all of your assets to person A, if your retirement account lists person B as the beneficiary, person B will receive the assets.  Be sure you check your beneficiary paperwork regularly to ensure your assets are set up to go where you want them.

3.) Minors Should Not Be Beneficiaries- Most custodians will not distribute assets to a minor.  Since this is the case, you may want to set up a trust naming your children a the beneficiary, and list the trust as the beneficiary on your account.  Another option is to name the person you have listed as caregiver to your children.  Whatever approach you choose, be sure to name a non-minor beneficiary.

4.) Name Contingent Beneficiaries-  A contingent beneficiary is the person who will be named as beneficiary if the primary beneficiary predeceases you. 

Each of these tips should be carefully considered to ensure your assets are distributed as you see fit.