Who Are Your Beneficiaries?

Ideally, you have a current will spelling out where your estate should go. But the existence of a will doesn't necessarily mean your heirs will receive the assets you've left behind. "Beneficiary Designations" trump any will provisions.

• When you opened retirement plans, annuities, life insurance policies and other financial accounts, you more than likely completed a Beneficiary Designation form, stating who should receive ownership of those assets if you die.
  
  The Beneficiary Designation allows assets to go directly to whomever you designate, without going through probate. The assets are still considered a part of your estate for the calculation of estate taxes; however, the transfer of ownership can be a simple as presenting a death certificate.
  
  
• For qualified plans — such as profit-sharing plans and 401k plans — federal regulations automatically designate the spouse of the account owner as the beneficiary.
  
  The account owner may not designate another as primary beneficiary unless the spouse signs a document approving such a designation and the approval is properly notarized. If the retirement account owner is not married, then his/her estate may be the default beneficiary.
  
  
• State law determines the treatment of IRAs. Some states require written spousal consent if the IRA owner designates anyone other than his/her spouse (or in addition to the spouse) as the primary beneficiary of the IRA. In other states, the default provision of the IRA plan determines the beneficiary if the IRA owner does not designate one.
  
  
• In addition to the beneficiary forms for retirement account assets, you can establish Transfer on Death (TOD) ownership for mutual funds and brokerage accounts that enable an account owner to designate an individual or entity to take ownership of the account on the owner's death.

Beneficiary designations take precedence over any provisions in your will. This makes it very important to know whom you have designated as the beneficiary on your accounts and to update designations as your life circumstances change.

Marriage, divorce, the birth of a child, death of a loved one, estrangement from family members, changes in your philanthropy goals, and even increases in assets to the level where you would like them divided among more participants are all reasons to carefully review your designations. If you change retirement plan or insurance providers, your beneficiary designation may not necessarily carry over.

A beneficiary can be almost anyone or anything. The exception is minor children under the age of 18 or 21 (depending on your state). Children cannot be named beneficiaries of life insurance policies, retirement plans or annuities, although you can name a trust for the child as a beneficiary.

If you don't have one now, set up a file with copies of all of your beneficiary designation forms. If you aren't sure who your beneficiary(ies) are, or if you have designated one, contact all of your investment, retirement, and insurance accounts and ask for current beneficiary information.

Most beneficiary designation forms allow you to name multiple primary and contingent beneficiaries who would receive your assets should the primary beneficiary die before you. You can also specify what percentage of assets you'd like distributed to each beneficiary upon your death. If your designated beneficiaries die before you, the account assets will become part of your estate.

You can revoke a designated beneficiary by delivering a notarized instruction letter signed by all the account holders (or your spouse in the case of some accounts) to the financial institution holding the account or by completing the institution's beneficiary designation change form.

Because your designated beneficiary accounts can be a sizeable portion of your estate, designating beneficiaries should be a part of your overall estate plan. There are also tax implications for your beneficiaries. The more complex and extensive your estate, the more important it is to get professional advice.

The preceding is for informational purposes only and should not be construed as legal or tax advice. Please consult your legal or financial advisor for a more thorough understanding of the issues impacting designated beneficiaries.

Lincoln Investment Planning, Inc. Can Help

Regardless of what you own, it is important that you be able to pass it on to the people or organizations you wish, in the manner that you wish. Call your Lincoln Investment financial representative today to help you prepare.