Designating Beneficiaries: Do’s & Don’ts

A key component of any estate plan is designating your beneficiaries. While this seems like a relatively straightforward process, one simple mistake could lead to legal and financial troubles down the road.

Keep in mind these do’s and don’ts from American Investment Planners, LLC as you begin your beneficiary designation process…

DO Name Primary and Contingent Beneficiaries

Your primary beneficiary is the person who receives the proceeds in the event of your death. However, if your primary beneficiary predeceases you, it is good to have a backup, or contingent beneficiary in place in order to avoid legal complications.

DON’T Name Your Estate As Your IRA Beneficiary

Doing this causes nonprobate assets to become subject to probate, and eliminates any flexibility your heir may have. For example, being named a direct beneficiary on an IRA account allows the recipient to stretch out distributions and incur less tax. Inheriting the IRA from an estate, on the other hand, comes with a different set of rules, which are much less tax-friendly.

DO Review Beneficiaries Annually

It’s important to review your beneficiaries after major life events such as birth, death, marriage, or divorce. Failure to take this step could result in a transfer of assets to unintended recipients, such as an ex-spouse, or the heirs of your deceased beneficiary.

DON’T Forget to Coordinate With Your Will

Your life insurance policy is just a small portion of your overall estate plan. It is important to understand how these pieces work independently of each other, and together as a whole. For instance, your beneficiary designation trumps what’s in your will, so you want to ensure the proceeds are going to your intended recipient.

DO Consult With a Financial Advisor

Estate planning is a legally complex process with many implications and consequences. A qualified financial advisor should be able to direct you to the most tax-efficient uses of your assets, and help you avoid making critical mistakes along the way.

American Investment Planners, LLC offers professional financial advice and estate planning services to individuals across the country. To schedule a face-to-face appointment with one of our consultants, please call (516) 932-5130 or email info@americaninvestmentplanners.com.

American Investment Planners does not provide tax or legal advice. Consult with a qualified legal or tax professional regarding your particular situation.