Who Should be the Beneficiary of Your IRA?

beneficiaryYour retirement account holds your hard-earned money, but if you think you can designate just anyone to receive that money, you might be surprised. Your IRA works just like an ordinary retirement account, which means you have a beneficiary designation attached to it.

When you establish your IRA, you will receive a beneficiary designation form. This form has you specify how much of the money is distributed, and to what party, upon your death. Anyone you write in this form will override anything you have in a trust or will. Therefore, you must consider this designation very carefully.

Should You Name a Spouse?

Most married couples will name a spouse for their beneficiary on a retirement form.

There are advantages to naming a spouse, such as:

  • Your spouse is the primary beneficiary, which gives them flexibility upon your death.
  • Your spouse can roll over the IRA – or leave it as an inherited IRA.
  • Your spouse can elect to take distributions when they leave it as an inherited IRA.

There are also cons to naming your spouse, such as:

  • Your spouse can then name any beneficiaries they would like after they inherit the IRA. This obviously means that they could name someone you did not want to inherit the money.

Should You Name a Trust?

In some cases, it may make sense to name a trust as the beneficiary of your retirement account. This allows you to protect the assets in your IRA – so that your spouse can use the funds, but not change the beneficiary. The purpose of the trust would be to ensure that your assets go to your children and spouse.

When you name a spouse, you must draft your trust so that it is properly worded and effective. Often, this stage is done incorrectly, which is why it imperative you work with an experienced estate attorney.

Sometimes you need a conduit IRA, which manages the IRA more efficiently and ensures assets are distributed on a set schedule rather than accelerated one.

There are cons to naming a trust as beneficiary, including:

  • If the IRAs are not large enough, it will cost more than the IRA is worth for the trustee to manage and distribute the funds.
  • This method can be less economical than other distribution methods.

Should You Name Children or Grandchildren?

When you name children or grandchildren who are still legal minors, then your will must have a guardian of the funds. The guardian then manages the inheritance until the children turn at least 18 years old.

Speak with an Estate Planning Attorney to Explore Your Options Properly

An estate planning attorney can help you with your beneficiary designations, while also helping you decide which route is best based on your personal needs, budget, and a number of assets you currently have.

To explore your options, speak with an attorney today by calling the Law Office of Andrew M. Lamkin, P.C. Schedule your free consultation at 516-605-0625, or request more information online.

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