Beneficiary designations for IRAs and other retirement plans will supersede any distribution instructions in a Will. If a spouse is named as a beneficiary of life insurance or an IRA, and an individual divorces, re-marries, and forgets to update their forms, their ex-spouse will remain entitled to the assets. Individuals can use POD (payable on death) or TOD (transfer on death) designations to name beneficiaries for bank accounts or investment accounts, respectively.
Probate is avoided for assets that have designated beneficiaries. When completingBeneficiary Designation forms, make certain a person (or in some cases, a trust) and not your estate is named as a beneficiary, which can help avoid probate and tax issues. An IRA left to an estate shortens the tax deferral life of the IRA as there are time limits for distribution requirements. Utilizing beneficiary designations and ensuring they are up-to-date can help reduce taxes and other costs for loved ones.
Common life events provide a good reason for you to contact your North Carolina estate planning attorney and update your beneficiaries:
- New baby
- Death of a relative
- Job change
As an extra step, name a secondary beneficiary. If you intend to name your spouse as a primary beneficiary and you are both killed in an accident, your assets will pass along as you desired to your contingent beneficiary.