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Retirement Plan

10 Reasons

Why Beneficiary Designations Are Important

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by Richard (Rick) Childress, CIMA , CRPC . 2- Name both primary and contingent beneficiaries. It’s a good
First Vice President. PIM Portfolio Manager practice to name a “back up” or contingent beneficiary in case the
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primary beneficiary dies before you. Depending on your situation,
eneficiary designations can you may have only a primary beneficiary. In that case, consider
provide a relatively easy way to
Btransfer an account or insurance whether it may make sense to name a charity (or charities) as the
contingent beneficiary.
policy upon your death. However, if 3- Update for life events. Review your beneficiary designations
you’re not careful, missing or outdated regularly and update them as needed based on major life events,
beneficiary designations can easily cause such as births, deaths, marriages, and divorces.
your estate plan to go awry. 4- Read the instructions. Beneficiary designation forms
We often complete these
designations without giving it much are not all alike. Don’t just fill in names — be sure to read the
form carefully. If necessary, you can draft your own customized
thought, but they’re actually important beneficiary designation, but you should do this only with the
and deserve careful attention. Here’s guidance of an experienced attorney or tax advisor.
why: Beneficiary designations take 5- Coordinate with your will and trust. Whenever you change
priority over what’s in other estate your will or trust, be sure to talk with your attorney about your
planning documents, such as a will or beneficiary designations. Because these designations operate
trust. For example, you may indicate independently of your other estate planning documents, it’s
in your will you want your assets to
pass to your spouse after your death. However, if the beneficiary important to understand how the different parts of your plan work
as a whole.
designation on your life insurance policy still names your 6- Think twice before naming individual beneficiaries for
ex-spouse, he or she may end up getting the proceeds. particular assets. For example, you may establish three accounts
Where You Can Find Them
Here’s a sampling of where you’ll find beneficiary designations: of equal value initially and name a different child as beneficiary of
each account. Over the years, the accounts may grow or be depleted
• Employer-sponsored retirement plans [401(k), 403(b), etc.] unevenly, so the three children end up receiving different amounts
• IRAs — which is not what you originally intended.
• Life insurance policies 7- Avoid naming your estate as beneficiary. If you designate a
• Annuities beneficiary on your 401(k), for example, it won’t have to go through
• Transfer-on-death (TOD) investment accounts probate court to be distributed to the beneficiary. If you name
• Pay-on-death (POD) bank accounts your estate as beneficiary, the account will have to go through
• Stock options and restricted stock probate. For IRAs and qualified retirement plans, there may also be
• Executive deferred compensation plans unfavorable income tax consequences.
• In several states, so-called “lady bird” deeds for real estate 8- Use caution when naming a trust as beneficiary. Consult your
Because you’re asked to designate beneficiaries on so many
different accounts and insurance products, it can be difficult to attorney or CPA before naming a trust as beneficiary for IRAs,
qualified retirement plans, or annuities. There are situations where it
keep up. However, it’s worth the effort; failing to maintain the makes sense to name a trust — for example if:
beneficiary designation on that 401(k) from three employers ago • Your beneficiaries are minor children
could mean that money will go to the wrong place. • You’re in a second marriage
When you first set up your estate plan, go over all the
designations you previously made and align them with your plan. • You want to control access to funds
Even in cases like these, you should understand the tax
After that, you should review and update them regularly — at consequences before you name a trust as beneficiary.
least once a year. 9- Be aware of tax consequences. Many assets that transfer by
10 Tips about Beneficiary Designations beneficiary designation come with special tax consequences. It’s
Because beneficiary designations are so important, keep these
things in mind in your estate planning: helpful to work with an experienced tax advisor to help provide
planning ideas for your particular situation.
1- Remember to name beneficiaries. If you don’t name a
10- Use disclaimers when necessary — but be careful.
beneficiary, one of the following could occur: Sometimes a beneficiary may actually want to decline (disclaim)
• The account or policy may have to go through probate. This
process often results in unnecessary delays, additional costs, and assets on which they’re designated as beneficiary. Keep in mind that
disclaimers involve complex legal and tax issues and require careful
unfavorable income tax treatment. consultation with your attorney and CPA.
• The agreement that controls the account or policy may
provide for “default” beneficiaries. This could be helpful, but it’s
possible the default beneficiaries may not be whom you intended.
Wells Fargo & Company and its affiliates do not provide legal or tax advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this
information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed. This article was written by
Wells Fargo Advisors Financial Network and provided courtesy of Richard, Childress CIMA®, CRPC®, PIM® Portfolio Manager, First Vice President in Naples at 239.264.1000 [If there is a charge to publish,
produce, or distribute an article, use the following disclosure instead of the above:] This advertisement was written by Wells Fargo Advisors Financial Network and provided to you by Richard, Childress CIMA®,
CRPC®, PIM® Portfolio Manager, First Vice President Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Agape Wealth Partners of
Edwards Asset Management is a separate entity from WFAFN. ©2024 Wells Fargo Advisors Financial Network, LLC. All rights reserved. First Clearing is a trade name used by Wells Fargo Clearing Services,
LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.
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