IRA Beneficiary designation is important for many reasons, but for many people, establishing beneficiaries for your IRA is not something that ranks high on your list of things to do. Conservative estimates suggest that Americans hold nearly $15 Trillion in IRA’s and other qualified retirement plans. Quite often, an individual’s IRA is the largest financial asset owned by an individual at the time of their death other than their primary residence.  Here are a few suggestions to maximize the value of this important asset:

  1. Documentation: You are typically allowed to select a beneficiary when you establish an IRA account. If you have already established an account, you can always amend your beneficiary status by executing the necessary forms available from your plan provider. Usually, you must use the forms provided by the Plan Administrator, so do not try to be creative and prepare your own form. If you do not make a beneficiary election, plans typically provide for the IRA to be distributed to your estate. As with most estate planning techniques, a straight distribution to your estate is often not preferred.
  2. Keep a Copy: Commonly, if the Plan Administrator cannot locate an appropriate beneficiary designation form, then they apply the default provisions of the plan. You may not like the result since that typically means it goes to your estate. In today’s market of mergers, companies going out of business, being sold, or simply changing locations, it’s good practice just to retain an official copy of your beneficiary form from your plan administrator to eliminate any potential confusion. Simply keep it in a place with your other important legal documents in case your family ever needs it.
  3. Keep it Updated: With any major life changes such as divorce, remarriage, or the birth of a child, you should always review your IRA beneficiary selections and other estate and insurance documents. Remember that your Will cannot change the beneficiary of your plan!  On more than one occasion, a IRA account holder has failed to update their beneficiary form which resulted in a grossly unjust windfall to an ex-spouse or other undeserving person. Please be sure that you do not make a similar mistake and forget to update your IRA beneficiary designation after a major life event.
  4. Minors: In Georgia, a person must be 18 years of age to receive property such as an IRA. In the event you leave your IRA to your minor child, they will be unable to personally access those funds. Instead, a qualified adult will have to file a petition in the local probate court to be appointed “Conservator” for the minor child. Then, the Conservator will have to report to the court annual about the status of the funds. The Conservator will also have to post a bond for the entire amount of the monies received from the IRA. It is typically a better idea to establish a trust for your children in your Last Will and Testament and have the trust listed as the beneficiary of your IRA. With a trust, you can reduce the overhead expenses in maintaining those funds, establish more or less criteria for the expenditure of the funds, and hopefully meet your overall objectives.
  5. Backup Beneficiary: Similar to other estate planning documents, you always want to list a contingent beneficiary on your IRA beneficiary form in case your primary beneficiary is deceased at the time of your death and therefore unable to inherit. If there is no backup beneficiary, your IRA will likely be liquidated, which may result in unnecessary income taxes, and then distributed to your estate.

The difference between effective planning and getting it wrong can cost your family hundreds of thousands of dollars. If you keep your IRA and estate forms up-to-date and correct, your IRA or other retirement plan can preserve significant funds for future generations to enjoy.

If you or a loved one has questions about establishing a plan for IRA beneficiaries in or around Northern Georgia and you need assistance in trying prepare an effective estate plan, the North Georgia probate lawyers at Durden & Mills, PC can assist you. Call us at (706) 543-4708.

CategoryEstate Planning