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How to bequeath your retirement savings

If you are leaving the account to multiple heirs, you need to indicate who gets what portion.

"Sometimes people just list a bunch of names, and I've had some horror stories where the bank was only willing to pay the first one named because (the account owner) didn't give a percentage for each heir," Slott says.

Consider your heirs' financial skills

If you're concerned that your intended heirs lack financial savvy and need to be protected from themselves or others, you might consider leaving your retirement account to a trust, especially if it contains a large amount.

"Nobody wants to leave a $5 million IRA to an 18-year-old," Slott says. "So you leave it to a trust and appoint a trustee who will dole it out."

Karen Geiger, a certified retirement financial adviser in Akron, Ohio, has seen cases in which children inheriting a retirement fund from some clients "just cash it and run." She agrees the solution is to put the money in a trust to be paid out to young beneficiaries over time "so that they don't blow it."

But Geiger warns that distributions from a retirement fund left to a trust generally must be taken out and taxed within five years.

Don't leave money to your estate

Only in extremely rare circumstances is it ever a good idea to leave your retirement account to your estate.

"You lose the tax benefits of extending distributions over a child or grandchild's life," Slott says. "The money has to come out much sooner. ... It's now subject to probate. It's subject to a will contest. And it might go to the wrong people."

Geiger agrees that such a move is usually ill-advised. "I have some clients who are single males with no children," she says. "I've been trying to talk them into leaving (their retirement savings accounts) to a charity."

Keep your paperwork up-to-date

With each major life event -- a marriage, the birth of a child or grandchild, a divorce, the death of a close family member -- you should review your beneficiary form and update it if needed.

Consult with a qualified financial adviser, and make sure you clue your family in on your intentions. The most important thing for them to know before you go, says Slott, is where you keep the beneficiary form.

"Even if you've named the beneficiaries, if (they) can't find the form, it's treated the same as if you didn't name them," he says.

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