A designated beneficiary is named on a life insurance policy or some type of investment account to identify the individual(s) who will receive those assets in the event of the account holder’s death. The beneficiary designation doesn’t replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent doesn’t have a will, the beneficiary may see a long delay in the probate court.
If you’ve done your estate planning, you’ve most likely spent a fair amount of time on the creation of your will (or trust). You’ve discussed the terms with an established estate planning attorney and reviewed the document with your lawyer before signing it.
FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.
The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.
A beneficiary designation on an account, like an IRA, gives instructions on how your assets will be distributed upon your death.
If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.
For more customization, you can have a form prepared by an estate planning attorney familiar with retirement plans. This form will still need to be provided to the bank or company.
You can address various possibilities with this form such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address is if you and your beneficiary die in the same accident.
These situations aren’t fun to think about, but they’re the issues usually covered in a will. Therefore, they should be addressed if a sizable IRA is at stake.
After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.
Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”