Smart Beneficiary Choices Can Save Your Heirs Thousands

Naming the right beneficiaries is often the key to a well-designed estate plan.

I just wanted to share a quick story showing how picking the right beneficiaries for your retirement and other accounts can save your family and heirs thousands of dollars.

We recently met with one of our clients, Brenda*, who has two grown children she wants to inherit her assets. Brenda also wants a portion of her estate to go to a few of her favorite charities. Brenda had named her grown kids as the beneficiaries of her IRA account. She also designated them to inherit most of her non-retirement assets, with a portion going to the charities.

Brenda was already way ahead of the curve. She had all her estate planning documents in place (something many people fail to do!), and had also submitted the beneficiary forms needed to direct her retirement assets to her heirs. She could have stopped right there, confident that she had covered all the bases.

But as we met with Brenda and her other advisors to talk about her estate plan, we were able to make some key improvements that could result in thousands of dollars in additional tax savings for Brenda’s children and grandchildren.

Very simply, we suggested Brenda consider naming her children as beneficiaries of her personal, non-retirement accounts, since heirs can receive these assets tax-free (any capital gains are essentially erased at death in a process called “step up” and beneficiaries normally receive assets in a tax-free distribution).

The charities, on the other hand, might be better beneficiaries of the IRA account, since they receive IRA assets without paying the same 10% to 37% in income tax that individual beneficiaries would pay. By simply switching around the beneficiary designations so that the right heir was assigned to the right account, Brenda could ensure that her assets would go straight to her loved ones and charities, and little or no money would be lost to the taxman.

Now, Brenda has total peace of mind. Her favorite charities are remembered in her plan, and her children and grandchildren will inherit their share quickly and without unnecessary tax shrinkage.

The Takeaway: A well-designed estate plan can save you money and heartache. We would be happy to help refer you to a qualified estate planning attorney if needed, and work with you, like we worked with Brenda, on a streamlined and tax-efficient strategy. As in Brenda’s case, simple changes can often save you thousands of dollars.

(Brenda* is not her real name; names and some details have been changed to protect our clients’ privacy).

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!


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