Estate Planning and Retirement Assets: What You Need to Know….

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Whether you’re wealthy or earn a modest income, there is one estate planning concern that is shared by people from all walks of life — the decision of who gets what when you’re gone. While some individuals may logically assume that a last will and testament is the one official forum to express such decisions, that’s not always the case. Often, an equally important issue is whom to name as beneficiary on life insurance policies, pension plan accounts and IRAs, since these assets are passed on independent of what may be spelled out in a will.

Life Insurance:

No matter who is designated, the beneficiaries will generally receive the death benefit proceeds income tax free. Unlike property disposed of in a will, if the beneficiary designation form is properly completed, insurance proceeds typically do not go through probate. For many married individuals, a spouse will be the most logical beneficiary. A trust may be a better beneficiary choice, however, if a surviving spouse would not have the knowledge, time or comfort level to manage the insurance proceeds. A properly designed and executed life insurance trust can provide considerable advantages to you, your loved ones and your estate. But trusts can be complex instruments, so be sure to consult with an estate planning professional with experience in setting up life insurance trusts to help ensure your peace of mind. Also, remember to name contingent or secondary beneficiaries. This means that if the primary beneficiary has died, the insurance proceeds will go to the individual or trust named as secondary beneficiary. If there are no surviving beneficiaries, then the beneficiary is generally the insured’s estate, which means the death benefits will be probated and ultimately distributed according to the instructions of the decedent’s last will and testament. If an individual dies without a valid will (intestate), then the order of legal beneficiaries to whom assets are distributed is specified by that state’s intestacy laws.

 

Pension Plans and Individual Retirement Accounts (IRAs):

Generally, the law requires that the spouse be the primary beneficiary of a 401(k) or a profit-sharing account unless he/she waives that right in writing. A waiver may make sense in a second marriage — if a new spouse is already financially secure or if children from a first marriage are more likely to need the money. Single people can name whomever they choose. And non-spouse designated beneficiaries of qualified retirement plans may be eligible for a “trustee-to-trustee” transfer to an inherited IRA, thus preserving the ability to stretch distributions over their life expectancies. Consult your tax advisor on how these rule changes may affect your situation.

 

Naming Children May Not Be Best:

Naming children as beneficiaries may cause unforeseen problems. For example, insurance companies, pension plans and retirement accounts may not pay death benefits to minors. The benefits would likely be held until they could be made to a court-approved guardian and/or trustee of a children’s trust. A guardian, trust or trustee should be named beneficiary to ensure competent management of the proceeds for the children. IRS rules provide that plans may allow non-spousal beneficiaries to stretch retirement plan distributions over the life of the beneficiary. Check with your employer to find out if this is an option under your plan prior to naming a child as a beneficiary. A competent financial professional and/or tax advisor can also offer guidance as to whether this action may be appropriate for you.

 

Keep Your Plan Up to Date:

As you formalize or update your estate plan and will, it is important to review all beneficiary designations so that your plan accurately reflects your current intentions. Remember that beneficiary designations could misdirect the intended flow of an estate unless they are kept up to date. As is always the case with estate planning, consult with qualified professionals concerning your particular situation in order to ensure that your beneficiary designations are in tune with your goals.

 

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Michele Bjorkgren, Financial Advisor
Compass Financial
p. 515.327.1020 x13
e. michele.bjorkgren@compassiowa.com
Securities Offered through LPL Financial
Member FINRA/SIPC

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A little more about us:
Compass Financial is an independent, fee-based financial advisory firm in West Des Moines, Iowa. The Compass Team helps individuals and families develop an inspiring vision of their financial future and a realistic strategy.

By listening closely to our clients’ true needs, wants, hopes, desires and dreams we are able to combine Wealth Management and broad Financial Planning customized to each individual situation. It’s our goal to assist you in developing a personalized financial road map. The results from the process should include confidence that comes from planning. As we all know, life happens, sometimes ambushing the best laid plans. Accepting a new reality and adapting the financial plan is work we have done many times for our clients.

We also offer Financial Check Up or Second Opinion Services to those who want to enhance the service they are already receiving. This should lead to a better understanding of your current plans and give added confidence to your existing advisor relationship.

Sometimes life’s biggest challenges come in the form of transitions, retirement, marriage, health issues, divorce, unexpected loss, or even college savings. Our team at Compass has experienced many of these life transitions, it’s our hope to come alongside you and your family. These defining moments of life provide opportunities to implement financial strategies that can have long lasting impact. The first step is always the most difficult, but can also be the most rewarding. Please Contact Us today to receive your free, no obligation, one hour initial consultation!

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