Unexpected roadblocks Could Override Your Will’s Instructions for Inherited Funds
WASHINGTON – Millions of Americans could unknowingly be leaving the distribution of their retirement savings to chance, even with a valid will in place. While a will dictates how assets like property and personal belongings are distributed, it doesn’t automatically govern the payout of funds held in accounts like 401(k)s and IRAs. Beneficiary designations on these accounts take precedence, potentially overriding your intended wishes and leading to unintended consequences for your loved ones.
This discrepancy stems from the way retirement accounts are structured. Directly naming children on a 401(k) account results in immediate payout to them, regardless of their age or financial preparedness. However, establishing a trust and naming it as the beneficiary allows for controlled distribution, dictating how and when funds are managed and dispersed. “Think through how that money will flow to those beneficiaries,” advises financial planner David Gottlieb. ”You may want the money to stay in the trust for a long period of time or you may want it paid out over a specific number of years.”
The issue is especially pressing now as life circumstances change – marriages, divorces, births, and financial shifts - often rendering outdated beneficiary designations inaccurate.Many individuals have busy lives and numerous financial accounts established over time, leading to oversight. A recent review of beneficiary designations is crucial, especially considering evolving regulations like the federal Secure Act, which mandates beneficiaries take distributions from inherited IRAs over a fixed timeframe.
Beyond simply naming beneficiaries, careful consideration must be given to the tax implications and legal requirements surrounding these distributions.Failing to update designations or properly utilize trusts can led to unexpected tax burdens and a loss of control over how your assets are ultimately distributed. it’s a critical reminder to check existing designations and ensure they align with your current wishes, or to establish them if they haven’t already been done.
