The Importance of Beneficiaries

The Importance of Beneficiaries

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Whenever you open a retirement account—a 401(k), an IRA, a Roth IRA, a 403(b), a 457, a Profit Sharing account—you are asked to name a primary and also a secondary, or contingent, beneficiary(ies) who will inherit the account upon your death. (Non-retirement accounts typically do not have named beneficiaries and are transferred according to instructions in your will or trust.) Most of the time, you open these retirement accounts, name the beneficiaries, and never look at the account beneficiaries again. However, reviewing your beneficiaries periodically is important, especially if you have had significant changes in your life, such as marriage, divorce, birth of a child, death, or you have just set up a trust. You want to make sure that your loved ones are protected and that your beneficiaries reflect your wishes at all times.

Over the past two years, we have been reviewing your beneficiary choices with you when you come in for your annual financial planning review. If you are not planning to come in this year and you wish to change who you have listed as your primary and/or contingent beneficiary(ies), please let us know.

If you named individuals (vs. your trust) as either your primary beneficiary or your contingent beneficiary, you want to think about whether you wish to have a “per capita” or a “per stirpes” distribution. “Per stirpes” means “by root” in Latin and indicates that, if you have two or more of your children as beneficiaries, you wish the portion inherited by each child (if your child should predecease you), to follow the family branch and be inherited by the progeny of the deceased child. “Per capita” means that if you have listed two or more beneficiaries as your contingent beneficiaries (or as your primary and you have no contingent listed), and one of the beneficiaries dies, you wish his or her portion to be divided among the remaining beneficiaries and not to be distributed to his or her children. (Melinda to insert the chart here). Most, but not all, retirement accounts use per capita as the default

Please let us know if you have any questions or you would like to make any changes to the retirement investment accounts that we have set up for you.

For further reading on the naming of beneficiaries, see http://www.drobnylaw.com/articles/designating-a-trust-as-beneficiary-of-individual-retirement-account-benefits/.