submitted by Michael Garry, CFP®, JD/MBA, Yardley Wealth Management, LLC
Chances are, when you bought life insurance, you put a lot of thought into it. How much coverage did you need? Were you covering the potential loss of income due to premature death, or were the proceeds to pay estate taxes or provide an inheritance? What kind of coverage did you want?
But many people who shop for life insurance spend almost no time considering how to fill out one of the most important parts of their policy: the part of the form where you name the beneficiary. The contingent or alternate beneficiary designation is usually an afterthought. Once made, those decisions are almost never reviewed. They should be.
The same goes for 401ks, 403bs, IRAs, etc. It doesn’t matter what you want or what you put in your Will, it only matters how you fill out the form.
For retirement plans it is more important than ever to check your beneficiary forms. For the last few years, your beneficiaries have been able to use Inherited IRAs when you die, and they can be much more tax efficient than if you leave the beneficiary form blank or let it intentionally go to your estate (there may be times when you want it to go to your estate, but not many, so it had better be thought through with the help of an Estate Planning attorney).
If you have children, and they are not mature adults, you should probably have a Trust provision in your Will, and your life insurance and retirement plan beneficiary designations should reflect that. It’s not a good idea to leave money or benefits to minor children in their own names. Nor is it usually wise to leave outright gifts to most children in their 20’s. You would know if your twenty-something is the exception!