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BENEFICIARY FORM BASICS

By Andy Ives, CFP®, AIF®
IRA Analyst

An argument could be made that the easiest financial document to complete is the IRA beneficiary form. Yet somehow this basic information consistently gets overlooked, mishandled, lost or fouled up. It’s not rocket science. Don’t complicate things. Keep it simple if you can.

Case in point: an attorney drafted a fancy addendum to a beneficiary form with all the necessary legalese and important letterhead and flourishing signatures. The addendum named John Doe’s wife as primary IRA beneficiary and their three adult children as contingent. Pretty straightforward. But then things went sideways. The following line was added above the names of the contingent beneficiaries: “If John Doe predeceases wife Jane Doe, then the contingent beneficiaries shall receive the following payout percentages,” and the document listed those numbers.

Wait a minute. If John Doe predeceases his wife, shouldn’t Jane get 100% of the IRA as the named primary beneficiary? The line was written backwards. It should have read, “If wife JANE Doe predeceases JOHN, THEN the contingent beneficiaries shall…” receive their percentage payouts.

Had this addendum been in existence at the time of John Doe’s death, its validity could have been challenged. Not only was it written on something other than the custodian’s actual beneficiary form, but the information contained in this single-page document was completely contradictory. In part one, Mom Jane was named primary beneficiary of Dad’s IRA. In part 2, the adult children were to receive the assets if Dad died before Mom. Huh?

Yes, a beneficiary form may look relatively innocuous and it should be easy to complete. But take your time, and do it correctly. Recognize the significance of this little form. It has the power to seamlessly transfer millions of dollars to charity and/or the next generation…or it could cripple an otherwise well-constructed estate plan.

A few items to consider:

 

  •  Where is the beneficiary form?
  • Is the form current?
  • Are contingent beneficiaries named?
  • If multiple beneficiaries, does the percentage of inheritance add up to exactly 100%?
  • Has the SECURE Act been considered, i.e., the new 10-year payout rule?
  • If you created an addendum, will the custodian accept it (since it was not written on their original form)?

Certainly there are other considerations, but these are some of the biggies. Be sure to contemplate all options, and work with a trusted advisor to ensure the beneficiary form meets your objectives. Review beneficiary forms annually, and if you can’t find a form, just fill out a new one as it will supersede the previous. The idea is to leave your heirs with an inheritance, not a financial headache.

https://www.irahelp.com/slottreport/beneficiary-form-basics

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Investment advisory services offered through Foundation Investment Advisors, LLC, a SEC-Investment Advisor Representative. Foundation Investment Advisors, LLC does not provide legal or tax advice. Investment Advisor Representatives of Foundation Investment Advisors, LLC may only conduct business with residents of the states and jurisdictions in which they are properly registered or exempt from registration requirements. Insurance and annuity products are sold separately through Chadmere Captial. Securities transactions for Foundation Investment Advisors, LLC clients are placed through TD Ameritrade.