Personal Finance Essentials
Estate Planning for Retirement Accounts
Your Will Doesn’t Control Your IRA
One Outdated Form Could Cost Your Family Everything
Naming Beneficiaries
The most common estate planning mistake parents make is naming minor children as direct beneficiaries of IRAs or life insurance policies. Unlike assets controlled by a will, IRAs and life insurance proceeds go directly to named beneficiaries – bypassing probate entirely.
When minor children are named as direct beneficiaries, the courts become involved. A financial guardian is appointed, and most distributions require court approval. The better approach: establish a children’s trust in your will and name it as the secondary beneficiary. This keeps assets out of probate, avoids court guardianship proceedings and lets you determine the age at which your children may access the funds.
Review and update your beneficiary designations whenever your life circumstances change – marriage, divorce, death of a beneficiary or birth of a child. These designations control where your money goes regardless of what your will says.
Inheriting a Retirement Account
When you inherit a retirement account, the rules are complicated but worth following carefully: they allow you to extend the life of the account and preserve years of tax-deferred growth. If you are the surviving spouse, you may convert the inherited account to your own IRA. If you are not the spouse, convert it to a Beneficiary IRA. In either case, consult a tax or financial professional before making any decisions, particularly if you plan to leave the inherited account to a trust or other non-individual.