Asset Transfer Strategies - Make it Count

With all new tax laws firmly in place, it’s time to take a look at your beneficiary designations as an essential part of your estate plan. Beneficiary designations provide a vehicle to transfer assets, or insurance proceeds, upon death.

Lapsing beneficiary designations are the first trigger at having your estate plan go awry.

If there is any advice to take away; remember, and rethink:

Beneficiary designations take precedence before all other estate planning documents, such as a will or trust. Correct!  Your 1 piece of paper with a named beneficiary, possibly stands stronger in validity, than your 85 pages of Last Will and Testament.

Illustration:  you may indicate in your will that everything you’ve worked so hard to accumulate is to go to your spouse after your death. However, if that overlooked beneficiary designation on your life insurance coverage contract still names your ex-spouse, they may in turn collect the payout of your policy. 

227.jpgTypes of assets where you’ll want to consider a naming a beneficiary:

  • Employer-sponsored retirement plans
  • IRAs
  • Life insurance policies
  • Annuities
  • Transfer-on-death (TOD) investment accounts
  • Pay-on-death (POD) bank accounts
  • Stock options and restricted stock
  • Executive deferred compensation plans

 

Take-homes for beneficiary designation:

Remember to name beneficiaries: Omission of beneficiary will leave the asset exposed to probate court. This often results in pointless delays in transfer of the asset, additional costs and adverse tax treatment.

Name both primary and contingent beneficiaries. It’s a good practice to name a “back up” or contingent beneficiary in case the principal beneficiary dies before you.  Do not give away your wishes and plans, by not thinking through a contingency plan, which includes possible charitable beneficiaries.

Update for life events. Review your beneficiary designations on a regular basis and update them, as needed, based on major life events, such as births, deaths, marriages, and divorces. Review this annually!

Read the instructions. Beneficiary designation forms are not all created equally. Be sure you understand the form, and ask questions of the human resources department, insurance agent, or actuary/investment advisor if needed. Consult with your CPA and attorney to assure proper designations.

Coordinate with your own will and trust. Speak with your attorney if needed, before going rogue on your beneficiary designations. Remember, these actions could work independently from your estate plan. You’ll want to walk away with assurance that you’re all working for a common goal.

Think twice before assigning specific persons to individual assets. Example, you set 3 accounts of value and name a different child as beneficiary on each account.  Over time, the accounts may perform differently, causing a skewed inheritance per child.

Avoid naming your estate as beneficiary. Example, if you designate a beneficiary on your 401(k), it is generally distributed directly to the beneficiary. If you name your estate as beneficiary, the account might have to go through probate. For IRAs and qualified retirement plans, there may be income tax implications.

Use caution when naming a trust as beneficiary. Consult your CPA or attorney before naming a trust as beneficiary for IRAs, qualified retirement plans, or annuities. There are situations where it is sensible to name a trust - for example if:

  • You have minor children
  • You have had a previous marriage, and children
  • A trust is an integral part of your overall estate plan.

Be aware of tax implications. Many asset transfers carry their own specific tax results. Coordinate your attorney and CPA to get the best result for your personal situation which is essential with 2018 tax law changes.

Your plans are you own. Often times we put plans aside for other tasks. Your estate plan is essential to ensure that your legacies are carried to future generations, that your assets are protected, and that your family will feel assured of your own plans and wishes.

Contact Us With Your Questions

If you have questions or need help with your beneficiary designations please contact a tax specialist at the Innovative CPA Group at 203-489-0612.