elderly woman hugging daughter discussing investment accountsOne way to show loved ones that you care, is by having an estate plan and communicating your wishes to them clearly, notes the article “Why You Should Add Beneficiaries to Your Investment Accounts Now” from The Street. That includes adding beneficiaries to your retirement and investment accounts. This simple step will help save heirs time, money and emotional stress at a time when they are likely to be overwhelmed with grief and paperwork.

They’ll retain more of your estate and get it faster too. When beneficiaries are named on investment and retirement accounts, the assets pass directly to them. If there are no beneficiaries, the asset may have to go through probate, the legal process of settling an estate when someone dies.

Probating an estate usually involves going to court, which is something your beneficiaries on your investment accounts would probably prefer not to deal with during a challenging time. A typical probate case could last a year, sometimes longer, depending on where you live. During this time, your beneficiaries are not able to access their inheritance. Going to court also means court fees, attorney fees, lost time, and additional stress.

Let’s not leave out how much of a bite probate can take out of your estate. Depending on its complexity, probate can consume anywhere from 0.5% to 5% of the estate.

Removes one stress for loved ones. Having assets transfer directly to beneficiaries lessens what can be an intense burden for heirs, while they are grieving. Once the account provider is notified of the death of the account holder, the provider typically notifies beneficiaries. The beneficiaries have to provide the correct documentation, like a death certificate, but that’s a whole lot easier than going through probate. Obtaining death certificates is usually part of the executor’s responsibility and doesn’t cost very much.

Beneficiary designations override your last will and testament. By law, a beneficiary designation determines who receives assets, regardless of what is in your will. That’s why it’s so important to make sure your beneficiary designations are up to date. What happens if you neglect to update your beneficiaries on an ERISA retirement account? For instance, what if you are divorced, but you forget to replace him as the beneficiary? In that case, your ex-spouse will receive the proceeds, no matter how many years you have been divorced or what your Will says.

It’s easy and relatively painless. Updating or establishing beneficiaries is one of the easiest parts of estate planning. Start by making a list of your investment accounts, which you should have anyway and contact the account custodian to find out who is listed as a beneficiary. If no one has been named, get directions on how to establish the beneficiary designation and if possible, name a secondary beneficiary.

If you have an IRA or a 401(k), your account will typically offer a beneficiary form within the account. If you have investment accounts, you’ll need to request a form from the custodian.

Special rules for retirement account beneficiaries. There are rules about leaving retirement plan assets to a spouse, so if you want to leave those assets to children or grandchildren, your spouse will have to sign off on that, with a waiver. Depending upon where you live, a spouse may be entitled to have of the assets in an IRA, even if other beneficiaries are listed, unless there is written consent.

It’s important to make sure your beneficiary designations are aligned with your estate plan.  Visiting with an estate planning attorney will help make sure things are coordinated and you are maximizing your tax planning.  With the SECURE Act coming into effect in 2020, it’s even more important to seek legal counseling on how to do appropriate planning.  If you have any question about your estate planning, please give Legacy Law Firm, P.C. a call at (605) 275-5665 to visit with an experienced and qualified estate planning attorney.

Reference: The Street (June 12, 2020) “Why You Should Add Beneficiaries to Your Investment Accounts Now”