Now’s A Good Time To Review Your Beneficiary Designations

 

Did you know that your will does not determine who gets your IRA or your 40l(k) account when you die?
That’s right – these accounts are “non-probate” assets, which means they’re not covered by your will. Instead, they will generally go to whatever per­ son you named as the beneficiary when you set up the account.

Similarly, your will doesn’t determine who gets your life insurance – that will go to the named beneficiary on the policy. And your brokerage account might have a beneficiary as well.

So as part of your estate plan, is essential from time to time to review your beneficiary designations. For example:

  • You’ve remarried, but you want to leave your 401(k) to your children from your prior marriage. Under federal law, even if you name the children as beneficiaries, your account will go to your new spouse – and not your children – unless your new spouse signs a waiver.
  • Is one of your beneficiaries a trust? If so, it’s a good idea to have this reviewed. There have been a lot of developments in the law recently, and you might want to change the way the trust is set up in order to make sure you’re still getting all the possible tax advantages.
  • Is your estate listed as your IRA or 40l{k) beneficiary? This is generally a bad idea, because you can often save a lot of taxes by naming individual beneficiaries instead and stretching out payments over time.
  • Is one of your beneficiaries a minor? This could require going to court and setting up a guardian­ ship, which can be time-consuming and expensive. There are better alternatives.
  • Do you plan to leave money to charity? It might be wise to leave IRA or 40 l (k) assets to charity, rather than other assets. That’s because heirs who receive IRA distributions have to pay income tax on them, whereas they probably won’t have to pay tax on other assets.
  • Did you also know that a divorce may not automatically change your beneficiary designations?

Florida has a new statute, which became effective 07-01-12 that provides when an individual dies after a dissolution or annulment of his or her marriage, a beneficiary designation, which designates the former spouse as a beneficiary, becomes void upon the divorce and the former spouse is deemed to have predeceased the decedent. See Florida statute 732.703

There are exceptions to this statute. It is not automatic. It does not apply to the extent that controlling federal law provides otherwise (for example plans that are covered by the federal statute known as ERISA, such as 401ks) or if the governing instrument provides otherwise or if state law other than Florida governs the contract or agreement, to name just a few of the exceptions to the statute.

BE CAREFUL.

CONSULT WITH YOUR ATTORNEY IN THESE SITUATIONS, ESPECIALLY IF YOU HAVE BEEN DIVORCED.