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| The benefits of naming beneficiaries |
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6.
Consider setting up a trust.
You don't have to have minor children to name a trust as a
beneficiary. The choice also can help you rein in a spendthrift
heir or provide for someone whom you believe is not able to be directly
responsible for the asset. "Are they able and knowledgeable
enough to manage a large sum?" asks Steven C. Boltz, a certified
financial planner and trust officer with Forum 1st Trust Services
in Indianapolis, Ind. "Can they legally manage items on their
behalf? Minor children, others with capacity problems such as mental
or physical illness, or just compromised judgment would be better
served to receive an income stream or assets held in trust."
7. Think
about tax ramifications.
The tax implications don't necessarily stop when you leave
property, so tax planning beyond your death is necessary. When you
name your spouse as a beneficiary, all those assets are passed along
without tax consequences, regardless of the amount. But if you have
an estate that exceeds the exemption
amount ($2 million in 2006, 2007 and 2008) when your spouse dies,
then the inherited assets could be subject to estate taxation (unless
he or she remarried and left all assets to the subsequent partner).
That means you essentially wasted your estate-tax exemption amount.
Reina M. DuVal, vice president and retirement planning specialist
with Raymond James Financial Services in Washington, D.C., also
notes that, "Sometimes retirement plans allow the beneficiary
to withdraw the proceeds over his or her lifetime. This will spread
out the income-tax obligation."
8. Name
contingent beneficiaries.
This will help protect your estate and heirs if your primary
beneficiary dies before you and you don't get around to changing
your designation. Forgetting to change a beneficiary when the person
predeceases you can have an impact on your estate and its heirs.
Some experts recommend naming two contingent beneficiaries to be
on the safe side.
"For example, if you name your best friend as
the beneficiary, forget to change the designation when the friend
dies and you later die, your friend's spouse or children could claim
that they were the rightful heirs of the (assets), not the individuals
named in your will," DuVal says.
9. Keep
everything up-to-date.
In addition to not leaving assets to ex-spouses or to someone
who dies before you, basic life changes require a re-evaluation
of beneficiaries. Children who originally named their parents as
beneficiaries, for example, might want to change those designations
once they are married and have their own families.
10. Make
copies.
When you fill out beneficiary paperwork, be sure to make a copy
for your records. The Financial Planning Association also recommends
that you get a signed receipt for each beneficiary form since firms
sometimes lose the originals.
Making the changes
Have you discovered that you need to change
some beneficiaries? Spiegelman suggests you take these steps:
- For an individual retirement account, request a
change form from the financial institution that manages the account.
- With corporate retirement funds, such as pensions
or 401(k), 403(b) or 457 plans, contact your employer's (or former
employer's) human resources or benefits department.
- If you're changing a beneficiary of a self-directed
qualified retirement plan, consult your plan's administrator.
- For insurance policies and annuities, contact the
insurer.
Be sure to make all changes in
writing, return required documents to the administrator and get
a copy of the changes for your records.
There. Now that you have all the
other issues taken care of, you can start deciding who
you will name as beneficiary.
Jenny C. McCune is a contributing
editor based in Montana.
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